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THE  LIBRARY 

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THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 
GIFT  OF 

Judge  Leon  T,  David 


CHICAGO   STAR 

BINDERY 
M  S.  Spring  St..   L.  A. 
T*i.   Mutual  4434 


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TH"-]  L/V.7  0?  MmiOIPAL  BOITDS,      1876. 


THE    LAW 


OF 


MUNICIPAL  BONDS 


BY 


HON.  JOHN  F.  DILLON, 

Judge  Eighth  Judicial  Circuit.    Author  of  "Law  of  Municipal 
Corporations,"  Etc. 


ST.   LOUIS: 
(t.  L  JONES  AND  COMPANY. 

1876. 


Copyright, 

1876. 

By  John  F.  Dillon. 

T 

I  ?76 


THE    LAW 


MUNICIPAL   BONDS 


PART    I.       OF   THE    POWER   TO    ISSUE    NEGOTIABLE    BONDS. 

Sec.  I.  Extent  of  municipal  indebtedness  in  this  country.  Comparative 
municipal  indebtedness  here  and  in  Great  Britain  and  Paris ; 
see  note. 

Sec.  2.  Effect  of  conferring  upon  municipalities  the  power  to  issue  com- 
mercial securities  for  public  improvements.  Stimulus  to  ex- 
travagance.    Abuse  of  power.     Repudiation. 

Sec.  3.  Scope  and  nature  of  present  article — the  law  of  Municipal 
Bonds  as  developed  in  the  federal  courts. 

Sec.  4.  Taxation  limited  to  public  purposes.  What  are  such.  Aid  to 
railways  :  bonds  issued,  for  sale,  to  be  paid  by  taxation. 

Sec.  5.  Two  great  classes  of  municipal  securities :  i.  Ordinary  warrants; 
2.  Negotiable  bonds.  Attributes  of  each.  Form  of;  mode 
of  execution,  etc. 

Sec.  6.  As  to  the  implied  power  to  borrow  money  and  issue  negotiable 
securities. 

Sec.  7.  Want  of  power  to  issue  bonds  always  open  as  a  defence.  The 
question  of  power  is  the  one  of  chief  interest  and  importance. 

Sec.  8.  Different  classes  of  bonds.  Implied  and  express  power  to  issue. 
Recitals.  Mode  of  pleading.  Statute  of  limitations,  etc. ; 
see  note. 

Sec.  9.  CoKdilicms  precedent  io  exercise  of  power,  such  as  popular  vote. 
Effect  of  non-compliance.  Recital  of  compliance.  Enjoining 
issue  of  bonds. 

Sec.  10.  Estoppel  by  recitals  in  bond  to  show  non-compliance  with  con- 
ditions precedent.     Knox  Co.  v.  Aspinwall. 

Sec.  h.  Estoppel  by  recital.  Failure  to  comply  with  the  requirements 
of  the  act  in  respect  to  notice  of  election 


T^ifZ^U 


2  THE   LAW    OF    MUNICIPAL   BONDS. 

Sec.  12.  Condition  precedent.  Assent  of  two-thirds  of  resident  tax- 
payers.    Onics  probandi.     Estoppel  by  recital. 

Sec.  13.  Estoppel  by  recital  to  set  up  an  excessive  issue  of  bonds  in  vio- 
lation of  the  enabling  act. 

Sec.  14.  Estoppel  by  recital  of  matter  in  pais — e.  g.,  date  of  subscription 
— conclusive. 

Sec.  15.  What  constitutes  completed  subscription,  or  valid  contract  to 
subscribe,  which  cannot  be  legislatively  impaired. 

Sec.  16.  Same.  Power  may  be  repealed  by  constitutional  provision  or 
legislative  enactment  before  rights  are  vested  thereunder. 

Sec.  17.  Same.     Mode  of  subscription.     When  subscription  complete. 

Sec.  18.  Same.  Completed  subscription.  Effect  of  consoiidaiion  oi  Tail- 
way  companies  on  validity  of  subscription  and  bonds. 

Sec.  19.  Must  be  a  valid,  constitutional  act  as  basis  of  power.  Con- 
struction of  special  powers;  see  note. 

Sec.  20.  J^egisfraiioH  of  bonds.  Effect  of  fraudulent  a«/(?^a/'/«^  on  rights 
of  innocent  holders. 

Sec.  21.  Retrospective  enactments  validating  defective  subscriptions  and 
bonds. 

Sec.  22.  General  summary  of  the  doctrine  of  the  Supreme  Court  of  the 
United  States  concerning  estoppel  by  recital  as  to  compliance 
with  conditions  precedent. 

Sec.  23.  Laches,  acquiescence,  payment  of  interest  and  retaining  the 
stock  or  consideration  as  grounds  of  estoppel. 

PART    II.      OF    THE    MODE    OF   ENFORCING   PAYMENT. 

Sec.  24.  Mode  of  enforcing  payment.  When  right  to  a  special  tax  exists 
it  cannot  be  legislatively  impaired. 

Sec.  25.  Remedy  of  bondholder  is  by  mandamus,  and  not  in  equity. 

Sec.  26.  Jurisdiction  and  course  of  procedure  in  the  federal  courts. 
Fieri  facias ;  demand;  refusal. 

Sec.  27.  Obstacles  in  way  of  enforcement  of  bonds.  Resignation  of  mu- 
nicipal and  local  officers.  Concerning  the  power  in  federal 
courts  to  appoint  its  own  officers  to  levy  and  collect  taxes. 
United  States  v.  Boutwell,  and  Rees  v.  Watertown. 

Sec.  28.  Distinction  between  negotiable  bonds  and  ordinary  warrants  as 
to  remedy  to  enforce  payment. 

PART   I.      OF   THE    POWER    OF    MUNICIPALITIES   TO  ISSUE  NEGO- 
TIABLE  SECURITIES. 

Section  i.  Extent  of  Mwiicipal  Indebtedness — Comparative 
Statement  here  and  in  Great  Britain  and  Paris,  note, — It  is  esti- 


THE    LAW    OF    MUNICIPAL    BONDS.  3 

mated  that  the  municipal  indebtedness  in  this  country  has 
already  reached  the  enormous  sum  of  ^900,000,000,  and  it  is 
constantly  increasing.'     A  large  portion  of  this  indebtedness 

'  'The  Public, '  July  27,  1 876,  page  53,  where  a  list  of  the  debts  of  sixty- 
two  cities  are  given,  amounting  to  5618,205,488.  The  writer  concludes  his 
article  with  these  admonitory  observations :  It  "  is  high  time  to  know 
how  large  a  burden  of  indebtedness  has  been  fastened  upon  the  com- 
merce and  industry  of  the  country  through  municipal  government.  Per- 
haps a  full  knowledge  of  the  magnitude  of  that  burden  may  awaken  the 
tax-payers  to  prevent  its  increase,  either  by  constitutional  changes,  or  by 
reforms  in  the  methods  of  local  government.  According  to  the  latest 
report  of  the  local  government  board  in  Great  Britain,  the  indebtedness 
-created  for  all  purposes  not  national  amounts  to  ;^g2,ooo,ooo,  or  about 
5460,000,000,  having  increased  about  $100,000,000  within  three  years. 
In  this  country,  the  increase  has  been  over  $360,000,000  in  six  years,  or 
•560,000,000  yearly,  in  only  sixty-two  cities  and  the  other  municipalities 
of  two  states.  In  the  whole  country,  it  has  probably  been  nearly  $100,- 
000,000  each  year.  Our  local  indebtedness  includes  $382,000,000  for 
states,  $  180,000,000  for  counties,  and  probably  $900,000,000  for  municipal- 
ities ;  in  all  $1,462,000,000.  It  is  a  mortgage  of  about  five  per  cent,  upon 
the  entire  estimated  wealth  of  the  country.  The  interest  exceeds  six 
per  cent,  yearly.  The  annual  tax  upon  industry  and  commerce  exceeds 
590,000,000  for  interest  on  local  debt  alone," 

It  thus  appears  that  although  our  taxable  property  and  resources  are 
much  les3  than  those  of  Great  Britain,  our  local  debt  is  at  least  twice  as 
large. 

Recently  the  city  of  Paris,  having  proposed  a  new  loan,  the  Econo- 
miste  Francaise  reviewed  the  growth  of  the  debt  of  that  city,  and  it  ap- 
pears that  municipal  extravagance  is  not  confined  to  this  side  of  the  At- 
lantic. "  The  figures  show,"  says  the  London  Economist,  alluding  to  the 
subject,  "  how  the  desire,  partly  to  beautify  the  great  city,  and  partly  to 
give  employment  to  its  turbulent  population,  has  led  successive  regimes 
to  add  extravagance  to  extravagance.  In  the  first  year  of  the  rule  of 
Napoleon  as  first  consul,  the  expenditure  of  Paris  was  no  more  than 
11,216,000  francs,  or  52,223,200  ;  in  the  last  year  of  the  first  empire,  the 
sum  had  grown  to  33,483,000  francs,  or  56,696,600.  In  fifteen  years, 
that  is,  the  expenditure  of  the  city  had  trebled.  The  two  invasions  of 
1814  and  181 5  imposed  heavy  fines  and  an  immense  outlay  upon  Paris, 
which  raised  the  expenditure  for  181 5  to  the  enormous  sum  of  over  78,- 
000,000  francs,  or  $15,600,000. 

"  But  in  the  first  year  of  the  Restoration,  the  outlay  was  again  reduced 
to  36,000,000  francs  ($7,200,000),  or  not  ver>'  much  more  than  the  sum 
spent  in  18 14.  The  elder  Bourbons  and  their  advisers  had  a  lively  recol- 
lecti'.-n  of  the  influence  exerted  on  the  Revolution  by  the  disorder  into 


4  THE   LAW   OF   MUNICIPAL   BONDS. 

is  evidenced  by  negotiable  bonds,  which  are  held  by  thousands 
of  persons,  at  home  and  abroad,  as  an  investment.  These 
bonds  have  been  issued  for  a  great  variety  of  purposes,  such  as 
the  erecting  of  pubhc  buildings,  the  making  of  municipal  im- 
provements, and  in  payment  of  subscriptions  for  the  stock  of 
railway  corporations,  or  as  donations  to  aid  them  in  the  con- 
struction of  their  roads  located  in  or  near  the  municipality  or 
public  corporation  thus  extending  its  assistance. 

Sec.  2.  Effect  of  power  to  issue  mimicipal  coimneixial  secunties 
for  public  improvements  —  Stimulus  to  extravagance  —  Abuse 
of  power — Repudiation. — The  power  conferred  upon  municipal 
and  public  corporations  to  issue  cojumercial  securities  for  such 
purposes  is  of  comparatively  recent  origin,  and  it  has,  unde- 
niably, been  attended  with  very  serious,  and  it  is  perhaps  not 

which  the  finances  had  fallen  under  Louis  XVI,  and  therefore  they  prac- 
tised economy  in  the  administration.  Accordingly,  we  find  that  in  the 
last  complete  year  of  Charles  X,  1829,  the  expenditures  had  risen  only 
to  48,000,000  francs  ($9,000,000).  Instead  of  trebling,  as  under  the  First 
Napoleon,  in  a  nearly  equal  period  of  time  under  the  Restoration  the  in- 
crease was  only  one-third.  But  with  the  government  of  Louis  Philippe, 
we  find  a  somewhat  augmented  outlay.  In  1847  the  expenditure  had 
risen  to  64,000,000  francs  ($12,800,000),  it  having  been  no  more  than 
40,000,000  francs  ($8,000,000)  in  1830. 

"  It  was,  however,  under  the  second  empire  that  extravagance  gained 
free  scope.  We  all  remember  the  great  works  carried  out  by  Baron 
Haussmann,  the  disregard  of  all  financial  rule,  and  the  mystifications 
practised  in  the  accounts.  Even  before  the  rise  of  Baron  Haussmann, 
however,  the  expenditure  swelled  inordinately.  In  1852,  including  the 
special  as  well  as  the  general  funds,  it  had  grown  to  102,000,000  francs 
(520,400,000),  or  38,000,000  francs  ($7,600,000)  more  than  in  1847.  And 
in  1869  it  had  actually  reached  346,000,000  francs,  or  $69,200,000.  Thus, 
as  under  the  First  Napoleon,  the  expenditure  had  more  than  trebled  in  a 
single  reign.  Furthermore,  we  see  that,  during  the  twenty  years  from 
the  accession  of  the  first  consul  to  the  breaking  out  of  the  war  with  Ger- 
many, the  expenditures  of  Paris  had  been  multiplied  about  thirty-one 
times,  from  less  than  ;^45o,ooo  to  nearly  ;i^i4,ooo,ooo  sterling  ($70,000,- 
000).  Since  the  restoration  of  order,  the  attention  of  the  government 
has  been  given  to  the  enforcement  of  economy.  But  the  minor  debts 
upon  the  city  have  allowed  of  only  a  small  measure  of  success  being  at- 
tained. In  the  present  year,  the  expenditure  is  estimated  at  305,000,000. 
francs,  or  $61,000,000." 

As  to  coupon  bonds,  see  Daniel  on  Neg.  Instr.  sec.  i486,  et  seq. 


THE    LAW    OF    MUNICIPAL    BONDS.  J 

Ttoo  strong  a  statement  to  add,  disastrous,  consequences,  the 
end  of  which  is  not  yet.  One  of  these  is  the  stimulus  which 
the  long  credit  commonly  provided  for  effectually  supplies, 
to  over-indebtedness.  The  bonds  usually  fix  a  time,  twenty 
or  thirty  years  distant,  for  payment  of  the  principal.  Those 
who  vote  the  debt,  and  the  councils  or  bodies  which  create 
it  and  issue  the  bonds,  do  so  without  much  hesitation,  as  the 
burden  is  expected  to  fall  principally  on  posterity.  A  learned 
justice  of  the  Supreme  Court  of  the  United  States  has  very 
fitly  described  the  effect  witnessed  as  a  mania  for  running  in 
■debt  for  public  improvements.^  It  has  elsewhere  been  char- 
acterized as  an  "epidemic  insanity"  inducing  extravagant 
corporate  subscriptions  to  public  works. 

In  many  parts  of  the  country,  and  particularly  in  the 
west,  this  mania  has  become  general  in  cities,  counties, 
townships  and  school  districts,  and  large  and  burdensome 
■debts  have  been  thoughtlessly  created.  The  writer  has 
Icnown  new  counties  in  a  western  state,  not  containing 
■over  10,000  inhabitants,  vote,  for  a  single  railway,  bonds 
to  the  amount  of  ;^300,ooo,  drawing  ten  per  cent,  interest, 
payable  annually,  and  instances  are  not  infrequent  where 
•bonds  have  been  issued  greater  than  the  assessed  value  of 
all  the  taxable  property  at  the  time,  within  the  municipal 
or  territorial  sub-division.  No  check  against  the  incurring 
of  over-indebtedness  is  so  effectual  as  the  one  t/iat  you 
must  pay  as  you  go,  but  this  is  wholly  disregarded  in  the 
legislation  which  authorizes  bonds  payable  at  a  remote  pe- 
riod. Another  serious  consequence  of  this  policy  is,  that 
even  the  interest  on  these  bonds  often  proves  to  be  a  heavy 
burden  upon  the  community,  and  in  many  instances  the  bonds 
.have  been  issued  fraudulently  by  the  public  or  municipal 
•officers,  and  no  consideration,  or  none  of  value,  has  been,  in 
fact,  received  therefor.  They  may,  indeed,  have  the  stock  of 
the  railway  company,  but  in  most  cases,  under  the  prevailing 
mode  of  constructing  railways,  the  stock  is  utterly  valueless. 
When  the  sting  of  taxation  is  felt,  and  when  the  tax-payer 
knows  that  the  bonds  were  fraudulently  issued,  and  even  when 

"Mr.  Justice  Davis. 


6  THE   LAW   OF   MUNICIPAL   BONDS. 

he  feels  that  they  were  improvidently  given,  experience- 
shows  that  repudiation,  or  attempted  repudiation,  is  the  next 
stage,  involving  a  forfeiture  of  the  pubHc  faith  pledged  for 
their  payment.  Occasionally  it  has  been  witnessed  that  the 
stcxte,  in  all  its  departments,  has  actively  sympathized  with  the 
repudiating  municipality,  and  the  public  faith  has  been  re- 
deemed only  through  the  coercion  of  the  Supreme  Court  of 
the  United  States.  In  a  few  instances,  indeed,  the  states 
have  set  the  example  of  repudiating  their  own  obligations 
issued  in  aid  of  railways ;  and  it  was  only  last  winter,  in  a 
case  of  this  kind,  that  the  Supreme  Court  at  Washington  felt 
itself  bound  to  declare  "  that  the  faith  of  the  state,  [of  Min- 
nesota] solemnly  pledged,  has  not  been  kept;  and  were  she 
amenable  to  the  tribunals  of  the  country,  as  private  individ- 
uals are,  no  court  of  justice  would  withhold  its  judgment 
against  her." 

Examples  of  this  kind  are  demoralizing,  and  cannot  safely 
become  general  or  frequent. 

Sec.  3.  Scope  and  nature  of  this  paper — Thelaiv  of  Munic- 
ipal Bonds  as  developed  in  the  Federal  Courts. — The  policy  of 
burdening  the  future  has  been  sanctioned  by  the  legislature, 
and  the  courts  have  to  deal  with  the  legal  rights  of  the  mu- 
nicipahty  on  the  one  hand,  and  the  holders  of  its  obligations 
on  the  other.  The  determination  of  their  legal  rights  in- 
volves enquiries  as  complicated  as  they  are  important.  The 
law  on  this  subject  is  substantially  the  growth  of  the  last 
twenty-five  years.  The  decisions  in  the  various  State  and 
Federal  courts  are  very  numerous,  and  on  some  points  con- 
flicting. The  writer  has  treated  the  subject  elsewhere,^  and 
does  not  in  the  present  article  intend  to  reproduce  what  is; 
there  said,  or  refer  to  it,  except  where  it  will  serve  to  illus- 
trate or  abridge  the  present  discussion.  It  is  impossible,, 
were  it  even  desirable,  to  compass  within  the  limits  of  a  single 
article  all  the  learning,  and  to  refer  to  all  the  cases,  upon  the 
subject  of  municipal  securities.  It  will  not  be  attempted. 
By  reason  of  the  greater  favor  with  which  the  rights  of  the 
holders  of  such  securities  have  been  regarded  by  the  Supreme 

3  Municipal  Corporations,  chaps.  14,  20. 


THE   LAW   OF   MUNICIPAL   BONDS.  f 

Court  of  the  United  States,  the  volume  of  municipal  bond 
litigation  has  of  late  years  taken  place  in  the  Federal  courts. 

The  present  article  will  be  devoted  mainly  to  a  consider- 
ation of  the  law  on  this  subject  as  determined  by  the  Supreme 
Court  of  the  United  States;  and  our  object  will  be  to  show 
exactly  the  doctrines  and  principles  which  have  received  the 
sanction  of  that  tribunal,  and  to  illustrate,  as  far  as  needful, 
their  application  in  particular  instances,  giving  prominence 
to  several  important  decisions  made  at  the  last  term,  not  yet 
officially  reported,  and  referring  incidentally  or  for  further 
illustration  to  the  decisions  of  the  State  courts  on  the  subjects 
or  topics  discussed. 

The  Supreme  Court  of  the  United  States  has  upheld  the 
rights  of  the  holders  of  municipal  securities  with  a  strong 
hand,  and  has  set  a  face  of  flint  against  repudiation,  even 
when  made  on  legal  grounds  deemed  solid  by  the  State 
courts,  by  municipalities  which  had  been  deceived  and  de- 
frauded. That  such  securities  have  any  general  value  left  is 
largely  due  to  the  course  of  adjudication  in  respect  thereto 
by  the  Supreme  Court,  and  the  reliance  which  is  felt  by  the 
public  that  it  will  stand  firmly  by  the  doctrines  it  has  so  fre- 
quently asserted.* 

Sec.  4.  Taxation  limited  to  public  purposes — What  aye  such 
— Aid  to  raihvays — Bonds  to  be  paid  by  taxation  for  what  pur~ 
poses  authorized. — After  the  numerous  decisions  by  courts  of 
the  highest  authority,  it  may  now  be  regarded  as  a  settled 
doctrine  of  American  law  that  no  tax  can  be  authorized  by 
the  legislature  for  any  purpose  which  is  essentially  private: 
or,  to  state  the  proposition  in  other  words,  for  any  but  ?i  pub- 
lic purpose}     What  is  a  public  purpose  may  not  always  be 

*  As  to  the  general  tone,  spirit  and  effect  of  the  decisions  of  the  Supreme 
Court  concerning  municipal  securities,  see  Dillon,  Munic.  Corp.  (2d  Ed.) 
sec.  415,  et  seq. 

sLoan  Asso.  v.  Topeka,  20  Wall.  655;  Curtis  v.  Whipple,  24  Wis. 
350;  Whiting  V.  Fon  du  Lac,  25  Wis.  167;  Allen  v.  Inhab.  of  Jay,  60 
Maine,  124;  Jenking  v.  Andover,  103  Mass.  94;  Lowell  v.  Boston,  ill 
Mass.  454;  Pray  v.  Northern  Liberties,  31  Penn.  St.  69;  Matter  of 
Mayor  of  New  York,  11  Johnson,  77  ;  Camden  v.  Allen,  2  Dutcher, 
39S  ;  Sharplessv.  Mayor  of  Phila.,  21  Penn.  St.  147  ;  Hanson  v.  Vernon, 


S  THE   LAW    OF   MUNICIPAL   BONDS. 

easy  to  determine ;  but  when  determined,  it  constitutes  the 
boundary  of  the  power  of  taxation.  Whether  taxation  to 
aid  in  the  building  of  raihvays  owned  by  private  corporations 
is  taxation  for  a  public  purpose,  is  a  question  which  has  been 
discussed  and  decided  by  the  courts  of  last  resort  in  almost 
every  state  in  the  Union,  and  by  the  Supreme  Court  of  the 
United  States.^  Although  the  doctrine  of  the  constitution- 
ality of  such  taxation  has  been  vigorously  resisted  and  com- 
bated, still  it  must  be  admitted  that  the  great  preponderance 
of  the  judicial  judgments  has  been  on  the  side  of  the  compe- 
tency of  such  legislation,  in  the  absence  of  special  constitu- 
tional restraint. 7  And  therefore  the  legislature  may  author- 
ize subscriptions  by  municipalities  to  the  stock  of  railway 
corporations,  or  donations  to  them,  and  provide  for  the  pay- 
ment of  such  subscriptions  or  donations  by  the  issue  and  sale 
of  the  negotiable  bonds  of  the  municipality.  But  a  statute 
which  authorizes  the  issue  of  bonds  to  be  paid  by  taxation  to 
aid  certain  individuals  or  classes,  or  in  aid  of  the  inam(factur- 
ijig  enterprise  of  individuals  or  private  corporations,  is  void — 
this  being  within  the  meaning  of  the  rule,  2^  private,  as  distin- 
guished from  a  public  purpose,  although  in  a  remote  or  col- 

27  Iowa,  47;  Coolcy,  Const.  Limit.,  129,  175,  48;  Dillon,  Munic.  Corp., 
sec.  587,  and  cases  cited;  Cooley  on  Taxation,  chap,  iv,  "where  the 
purposes  for  which  taxes  may  be  laid  "  are  enumerated,  and  illustrated 
by  the  adjudicated  cases. 

*The  cases  are  collected,  Dillon's  Munic.  Corp.  (2d  Ed.),  sees.  104, 
105:  Rogers  v.  Burlington,  3  Wall.  654;  Supervisors  v.  Schenck,  5 
Wall,  772,  779;  Olcott  V.  Supervisors,  16  Wall.  678;  Railroad  Co.  v. 
Otoe  Co.,  16  Wall.  667;  Loan  Asso.  v.  Topeka,  supra;  Township  of 
Pine  Grove  v.  Talcott,  19  Wall.  dd^i.     1873. 

7  In  Pine  Grove  Township  v.  Talcott,  19  Wall.  666,  677,  Mr.  Justice 
Swayne  says  that  such  legislation  has  been  sustained  in  nineteen  out  of 
twenty-one  states.  As  respects  legislative  power,  donations  and  sub- 
scriptions for  stock  stand  on  the  same  ground.  Town  of  Queensbury  v. 
Culver,  19  Wall.  83.     1873. 

If  it  be  allowable  to  judge  of  a  legal  principle  by  its  fruits,  the  dissent- 
ing and  minority  judges  on  this  question  will  find  much  to  confirm  the 
conviction  that  their  views  were  sound.  But  it  is  useless  to  fight  that 
battle  over  again  ;  it  has  been  fought  and  lost.  All  that  is  left  is  the  con- 
templation and  contrast  of  what  might  have  been  and  what  is. 


THE    LAW    OF    MUNICIPAL    BONDS.  g 

lateral  way  the  local  public  might  be  benefited  thereby.^ 

The  execution  of  the  powers  ordinarily  conferred  upon 
municipal  corporations,  such  as  improving  highways  and 
streets,  constructing  water  works,  gas  works,  markets,  pre- 
serving the  public  health,  and  the  like,  are  of  course  public 
purposes,^  and  upon  legislative  authority  being  given,  nego- 
tiable bonds  may  be  issued  therefor.  What  will  constitute 
sufficient  authority  for  the  issue  of  such  bonds  will  be  con- 
sidered further  on. 

Sec.  5-  Two  great  classes  of  JMunicipal  Securities :  i.  Ordi- 
nary zvarrants ;  2.  Negotiable  bonds — Form,  execution,  and 
■  attribiites  of  each. — It  is  material  to  bear  in  mind  the  different 
kinds  of  corporate  evidences  of  debt.  These  are  of  two  gen- 
eral classes.  First,  there  is  the  iisnal  nmnicipal  or  county 
warrant  or  order.  These  are  commonly  drawn  by  one  or 
more  of  the  officers  upon  the  treasurer,  directing  him  to  pay 
to  the  person  named  or  bearer  a  given  sum  of  money.  The 
power  to  issue  them,  and  the  mode  in  which  it  is  to  be  exer- 
cised, are  usually  prescribed  by  charter  or  statute.  They  are 
vouchers  or  "  necessary  instruments  for  carrying  on  the  ma- 
chinery of  municipal  administration  and  for  anticipating  the 
collection  of  taxes,"'°  out  of  which  they  must  be  paid. 

It  is,  perhaps,  true  that  the  power  to  issue  such  warrants 
or  orders  may,  where  not  expressly  conferred  or  denied,  be 
implied  z.^  incidental  to  carrying  out  the  objects  of  a  munici- 

®  Loan  Asso.  v.  Topeka,  supra.  And  they  are  incapable  of  mu- 
nicipal or  legislative  ratification.  lb.  Commercial  Bank  v.  lola,  2  Cent. 
Law  J.  167.  Same  cases  below,  2  Dillon's  C.  C.  R.  353  ;  3  Dillon's  C. 
C.  R.  376.  Same  principle.  Lowell  v.  Boston,  (aid  to  enable  citizens  to 
rebuild  houses  destroyed  by  a  large  fire,)  in  Mass.  454,  1873  I  Allen  v. 
Jay,  (aid  to  construct  mills,)  60  Maine,  124,  1871.  The  cases  cited  in 
this  note  were  approved  in  The  State  etc.  v.  Osawkee  Township,  14 
Kansas,  418,  1S75,  i"  which  the  Supreme  Court  of  Kansas  held  an  act 
■whose  object  was  to  provide  the  destitute  with  provisions  and  with  grain 
■for  seed  and  feed,  and  to  issue  bonds  for  that  purpose,  unconstitutional, 
"because  not  issued  for  a  public  purpose. 

9  Cooley  on  Taxation,  chap.  4,  p.  67,  et  scq.;  Daniel  on  Nego.  Instr.,  \ 
1522,  and  cases  cited;  Dillon,  Mun.  Q-ox"^. passim, 

^°  Per  Bradley.  J.,  in  The  Mayor  of  Nashville  v.  Ray,  19  Wall.  46S, 
477.     1S73. 


lO  THE   LAW   OF   MUNICIPAL   BONDS. 

pal  or  public  corporation.  Such  instruments  issued  by  mu- 
nicipal and  public  corporations,  by  usage,  are  generally 
treated  as  negotiable  in  the  sense  of  being  transferrable  by 
delivery,  and  in  most  of  the  states  the  transferee  or  holder 
may  enforce  payment  by  suit  or  by  ina^idanuis  in  his  own 
name."  But  it  is  a  mistaken  notion,  and  one  which  has  no 
support  in  reason  or  policy,  and  but  little  in  the  adjudications, 
that  they  are  either  commercial  paper  or  possess  the  attrib- 
utes of  such  paper. 

On  the  contrary,  in  whosesoever  hands  they  may  be,  or 
at  whatever  time  purchased,  whether  with  or  without  notice,, 
they  are  always  open  to  any  defence  which  might  have  been 
made  against  the  payee  or  original  holder."  The  fundamen- 
tal idea  is  that  they  are  not  commercial  securities,  and  are 
not  governed  by  the  rules  of  the  law  merchant  in  respect  of 
negotiable  instruments. 

Second,  tlicre  is  the  municipal  bond,  negotiable  in  form,  paya- 
ble at  a  future  day,  intended  for  sale  in  the  market,  issued- 
under  express  authority  of  the  legislature.  These,  notwith- 
standing they  are  under  seal,  are  clothed  with  all  the  attrib- 
utes of  negotiable  or  commercial  paper,  pass  by  delivery  or 
endorsement,  and  are  not  subject  to  equities,  (where  the  power 
to  issue  them  exists,)  in  the  hands  of  holders  for  value,  before 
due,  without  notice.  This  has  ceased  to  be  a  disputed  point, 
and  the  cases  adjudging  or  recognizing  this  principle  in  the 
state  courts  are  very  numerous. '3     Such  bonds  usually  have 

"  The  cases  on  the  point  arc  cited  in  Dillon  on  Munic.  Corp.  \  406, 
note.     Infra,  I  28. 

"  The  Mayor  etc.  v.  Ray,  19  Wall.  468,  477,  478 ;  Dillon,  Munic.  Corp. 
sec.  406,  where  the  cases  are  collected. 

'3  Mercer  Co.  v.  Hacket,  i  Wall.  83,  1863,  and  other  cases  cited  in  Dil- 
lon on  Munic.  Corp.,  §  405,  note;  Daniel  on  Nego.  Instr.,  ^  1500,  and 
cases  there  cited. 

Fonn  of  Bond — Condition. — Municipal  bonds,  in  the  usual  form,  con- 
taining words  of  negotiability,  with  coupons  attached,  are  absolute,  and' 
not  conditional,  promises  to  pay,  and  hence  are  negotiable  with  all 
the  incidents  of  negotiability,  notwithstanding  they  contain  the  following 
recital :  "This  bond  is  issued  for  the  purpose  of  subscribing  to  the  cap- 
ital stock  of  the  Fort  Scott  and  Allen  County  Railroad,  and  for  the  con- 
struction of  the  same  through  the  said  township,  in  pursuance  of  and  in- 


THE    LAW    OF    MUNICIPAL    BONDS.  I  Jf 

coupons  attached,  which  partake  of  the  nature  of  the  bond, 
are  Hkcwise  negotiable,  may  be  detached  and  held  separately 
from  the  bond,  and  the  holder  may  sue  thereon  in  his  own 
name,  without  producing  or  being  interested  in  the  bonds 
to  which  they  were  originally  attached.'* 

accordance  with  an  act  of  the  legislature  of  the  state  of  Kansas,  entitled 
'An  act  to  enable  municipal  townships  to  subscribe  for  stock  in  any  rail- 
road, and  to  provide  for  the  payment  of  the  same,  approved  February 
25,  1870  ;'  and  for  the  payment  of  the  said  sum  of  money  and  accruing 
interest  thereon,  in  manner  aforesaid,  up07t  the  performance  of  the  said' 
condition,  the  faith  of  the  aforesaid  Humboldt  township,  as  also  its  prop- 
erty, revenue  and  resources,  is  pledged,"  the  court  holding  that  the  con- 
struction of  the  road  through  the  township  was  not  a  condition  upon 
which  payment  was  to  be  made.  Humboldt  Township  v.  Long,  U.  S. 
Sup.  Court,  Oct.  Term,  1875,  3  Cent.  Law  Jour.  494. 

In  giving  its  judgment,  the  court  says  :  "  Relying  upon  this  clause  of 
the  certificate  the  township  contends  that  the  construction  of  the  railroad 
through  the  township  was  a  condition  upon  which  the  payment  was 
agreed  to  be  made.  We  think,  however,  this  is  not  the  true  construc- 
tion of  the  contract.  The  construction  of  the  road  as  well  as  the  sub- 
scription for  stock  were  mentioned  in  the  recital  as  the  reasons  why  the 
township  entered  into  the  contract,  not  as  conditions  upon  which  its  per- 
formance was  made  to  depend.  It  was  for  the  purpose  of  subscribing,, 
and  to  aid  in  the  construction  of  the  road,  that  the  bond  was  given.  The 
words,  '  upon  the  performance  of  the  said  condition,'  cannot,  then,  refer 
to  anything  mentioned  in  the  recital,  for  there  is  no  condition  there.  A 
much  more  reasonable  construction  is  that  they  refer  to  a  former  part  of 
the  bond,  where  the  annual  interest  is  stipulated  to  be  payable  at  a 
banker's,  '  on  the  presentation  and  surrender  of  the  respective  interest 
coupons.'  Such  presentation  and  surrender  is  the  only  condition  men- 
tioned in  the  instrument.  But  that  stipulation  presents  no  such  contin- 
gency as  destroys  the  negotiability  of  the  instrument.  It  is  what  is  al- 
ways implied  in  every  promissory  note  or  bill  of  exchange,  that  it  is  to 
be  presented  and  surrendered  when  paid.  As  well  might  it  be  said  that 
a  note  payable  on  demand  is  payable  upon  a  contingency,  and  therefore 
non-negotiable,  as  to  affirm  that  one  payable  on  its  presentation  and  sur- 
render is,  for  that  reason,  destitute  of  negotiability."  See,  also,  Hotch- 
kiss  v.  National  Bank,  21  Wall.  354,  1874.  As  to  form  of  bonds,  seal, 
place  of  payment  and  delivery,  see  cases  cited  Daniel  on  Neg.  Instr.,  \\ 
1492-1499. 

Power  to  substitute  other  bonds.     Lynde  v.  County,  16  Wall,  6;    Mc- 
Kee  v.  Vernon  Co.,  3  Dillon  C.  C.  R.  210. 

'•*  Thompson  v.  Lee  Co.,  3  Wall.  327  ;  Dillon  on  Munic.  Corp.  \  405, 
note  ;  Kennard  v.  Cass  Co.,  3  Dillon  C.  C.  R.  147,  1S74  ;  Daniel  on  Neg^ 


J 2  THE   LAW   OF   MUNICIPAL   BONDS. 

Sec.  6.  As  to  the  implied  power  to  borrozu  money  and  issue 
comvioxial  or  negotiable  paper. — Much  conflict  of  opinion  has 
existed  in  the  American  courts  touching  the  implied  power 
of  pubhc  and  municipal  corporation  to  issue  commercial  or 
negotiable  ijistruments,  that  is,  instruments  free  from  equities 
in  the  hands  of  innocent  holders  for  value.  In  respect  of 
public  or  quasi  corporations,  such  as  counties,  etc.,  as  distin- 
guished from  municipal  corporations  proper,  the  general  cur- 
rent of  authority  is  against  the  proposition  that,  as  ordinarily- 
organized,  they  possess  any  such  implied  power.  And  the 
power  is  not  incident  to  the  authority  to  make  specified  ex- 
penditures or  improvements,  but  it  may  be  implied,  where 
there  is  nothing  to  rebut  it,  from  other  powers,  such  as  the 
express  power  to  borrow  money.'s 

But  in  view  of  the  more  complex  and  diversified  powers 

Instr.,  \  1509,  and  cases  cited.  The  proposition  of  the  text  is  not  a  dis- 
puted one,  and  coupons,  when  disconnected  from  the  bonds,  have  an 
independent  existence.  Clark  v.  Iowa  City,  20  Wall.  586 ;  Daniel  on 
Neg.  Instr.,  \  1510. 

Coupons — Form  of  Instrument. — Maker  suable  thereon  in  assumpsit, 
where  the  bonds  are  made  by  the  defendant  corporation  and  refer  to 
the  coupon,  though  the  latter,  signed  by  the  agents  of  the  corporation,  is 
in  the  form  of  an  order  or  check  on  a  bank  named  therein.  Town  of 
Queensbury  v.  Culver,  19  Wall.  83,  1873.  Cases  as  to  the  form  of  cou- 
pons, sec  Daniel  on  Neg.  Instr.,  II  1492-1496.  May  be  made  payable 
beyond  limits  of  the  state,  unless  specially  restrained  by  statute.  Lynde 
V.  County,  16  Wall.  6. 

How  signed. — The  coupons,  where  the  bonds  are  properly  signed  and 
sealed,  may  be  signed  by  a  printed fac  simile  of  the  maker's  autograph, 
adopted  for  the  purpose,  although  there  is  no  statute  authorizing  it.  Pen- 
nington V.  Baehr,  (Sup.  Court  of  Cal.,)  2  Cent.  Law  Jour.  92.  See  McKee 
V.  Vernon  Co.,  3  Dillon  C.  C.  R.  210;   Lynde  v.   County,   16  Wall.  6. 

'5  Police  Jury  v.  Britton,  15  Wall.  566,  1872.  The  ordinary  powers 
possessed  by  counties,  as  agencies  of  the  state  in  the  administration  of 
public  affairs,  do  not  give  the  incidental  power  to  issue  negotiable  bonds 
and  coupons.  "  It  would  be  an  anomaly,  justly  to  be  deprecated,  for  all 
our  limited  territorial  boards,  charged  with  certain  objects  of  necessary 
local  administration,  to  become  fountains  of  commercial  issue,  capable 
of  floating  about  in  the  financial  whirlpool  of  our  large  cities."  Id.^<?r 
Bradley,  J.     See  Lynde  v.  County,  16  Wall.  6. 

Distinction  between  public  and  tnunicipal  corporations,  in  the  sense 
Teferred  to  in  the  text,  see  Dillon  on  Munic.  Corp.  sees.  10,  30,  33,  39. 


THE   LAW   OF   MUNICIPAL   BONDS. 


13 


usually  conferred  upon  chartered  or  municipal  corporations 
proper,  there  has  been  a  stronger  tendency  on  the  part  of 
the  courts  to  hold  that  such  corporations,  as  usually  existing 
in  this  country,  have  an  incidental  or  implied  power  to  issue 
commercial  securities.  The  line  of  argument  is  substantially 
this  :  — Trading  and  commercial  corporations  have  this  power 
as  an  incidental  means  of  effecting  their  objects;  why  not 
municipal  corporations  as  well?  Municipal  corporations  are 
clothed  with  large  powers,  which  necessarily  oblige  them  to 
use  credit  or  to  create  debts :  therefore,  if  they  may  create 
debts,  they  may  borrow  the  money  to  pay  them,  and  if  they 
may  borrow  money,  they  have  the  incidental  power  to  do 
like  other  borrowers,  namely,  give  a  negotiable  bill,  note  or 
bond  therefor.  The  whole  argument,  in  our  judgment,  is 
unsound.  It  is  true,  that  in  this  country  private  business  cor- 
porations are  usually  considered  to  have  the  incidental  power 
to  borrow  money  or  give  negotiable  paper  as  an  evidence  of 
their  indebtedness,  but  in  England  it  is  held  that  express 
power  is  necessary  to  enable  even  railway  corporations  to 
draw,  endorse  or  accept  bills  of  exchange.'^  But  admit  that 
the  American  doctrine  is  otherwise,'?  and  that  it  is  rightly  so, 
still  their  is  no  resemblance  between  private  and  public  or 
municipal  corporations  in  this  regard.  The  latter  are  simply 
agencies  of  government.  They  are  not  organized  for  trading, 
commercial  or  business  purposes.  They  have,  in  general, 
but  one  mode  of  meeting  their  liabilities,  and  that  is  by  tax- 
ation, and  it  is  upon  this  resource  that  creditors  must  be  taken 
to  rely.  For  hundreds  of  years  in  England,  such  corporations 
have  existed,  without  it  ever  being  contended  that  they 
could,  without  express  authority,  issue  commercial  paper. 
Private  corporations  are  much  more  vigilant  and  watchful  of 
their  interests  than  it  is  possible  for  public  or  municipal  cor- 
porations to  be.     The  frauds  which  unscrupulous  officers  will 

'*  See  observations  of  Byles,  J.,  in  Bateman  v.  Mid-Wales  Railway 
Co.,  Law  Rep.  i  C.  P.  510,  1S66. 

'7  Stratton  v.  Allen,  16  N.  J.  Eq.  229  ;  McCullough  v.  Moss,  5  Denio, 
567  ;  Straus  v.  Eagle  Ins.  Co.,  5  Ohio  St.  59 ;  2  Kent's  Com.  229 ;  i  Par- 
sons' Notes  and  Bills,  165. 


-14  THE   LAW   OF   MUNICIPAL   BONDS. 

be  enabled  successfully  to  practise,  if  an  implied  and  un- 
guarded power  to  issue  negotiable  securities  is  recognized, 
and  which  the  corporation  or  the  citizen  will  be  helpless  to 
prevent,  is  a  strong  argument  against  the  judicial  establish- 
ment of  any  such  power.  And  the  argument  is  unanswera- 
ble, when  it  is  remembered  that  in  ascertaining  the  extent  of 
corporate  powers,  there  is  no  rule  of  safety  but  the  rule  of 
strict  construction,  and  that  such  an  implied  power  is  not 
necessary,  however  convenient  it  may  be  at  times,  to  enable 
the  corporation  to  exercise  its  ordinary  and  usual  express 
powers,  or  to  carry  into  effect  the  purposes  for  which  the 
corporation  is  created.  We  regard  as  alike  unsound  and 
dangerous  the  doctrine  that  a  public  or  municipal  corpora- 
tion possesses  the  implied pozvcr  to  borrow  money  for  its  ordi- 
nary purposes,  and  as  incidental  to  that,  the  power  to  issue 
commercial  securities.  The  cases  on  this  subject  are  con- 
flicting, but  the  tendency  is  towards  the  view  above  indicated. 
The  opinion  of  Mr.  Justice  Bradley,  in  a  case  before  referred 
to,^^  evinces  a  thorough  comprehension  of  the  whole  ques- 
tion, and,  in  our  judgment,  is  sound  in  every  proposition  it 
advances,  and  must  become  the  law  of  this  country.  This 
view  is  confirmed  by  the  almost  invariable  legislative  practice 
in  the  states  to  confer,  when  it  is  deemed  expedient,  upon 
municipalities  and  public  corporations,  in  express  terms,  the 
power  to  borrow  money  or  to  issue  negotiable  bonds  or  secur- 
ities, and  it  is  of  instruments  thus  authorized  that  the  present 
article  designs  principally  to  treat.  It  is  an  admitted  and 
undisputed  doctrine  that  the  power  of  public  and  municipal 
corporations  to  subscribe  to  the  stock  of  railway  companies 
and  issue  bonds  therefor  must  be  expressly  conferred. '^ 

'^The  Mayor  v.  Ray,  19  Wall.  478,  1873.  It  is  difficult  to  understand 
on  what  ground  the  dissenting  Judges  in  this  case  regarded  the  corpora- 
tion warrants  as  "  negotiable  securities  of  a  commercial  character."  The 
cases  are  almost  uniform  that  such  instruments  do  not  partake  of  the 
nature  of  commercial  paper,  except  that  by  usage  and  custom,  and  some- 
times by  legislative  enactment,  they  pass  by  delivery.  Si(pra,  sec.  5,  and 
authorities  there  referred  to. 

'»  The  cases  on  this  point  arc  collected  in  Dillon's  Munic.  Corp.  sec. 
106,  note. 


THE    LAW    OF    MUNICIPAL    BONDS.  1 5 

Sec.  7.  JVafif  of  poiocr\  always  a  defence — Qiiestion  of  poiver 
is  the  o}ie  of  chief  interest  and  importance. — Touching  the  rights 
of  the  holder  of  authorized  negotiable  municipal  securities,  it 
may  be  observed  here  as  introductory  to  what  follows,  that 
such  instruments  are  comuicrcial  paper,  and  governed  by  the 
rules  of  the  law  merchant  concerning  such  paper,  and  that  as 
respects  a  holder  for  value,  before  due,  without  notice  of 
facts  constituting  a  defence  thereto,  the  only  defence  which 
is  available  is,  that  there  was  7io  power  in  the  defendant  cor- 
poration to  issue  the  bonds  or  instruments  in  question.  This 
principle  is  thus  expressed  in  one  of  the  judgments  of  the 
•Supreme  Court:  "Bonds,  payable  to  bearer,  issued  by  a  mu- 
nicipal corporation,  *  *  if  issued  in  pursuance  of  a  power 
^conferred  by  the  legislature,  are  valid  commercial  instru- 
ments; but  if  issued  by  such  a  corporation  which  possessed 
no  pozver  from  the  legislature,  they  are  invalid,  even  in  the 
hands  of  innocent  holders."  ^°  Irregidaritics  in  the  exercise 
of  the  power,  as  against  a  holder  for  value,  without  notice  of 
such  irregularities,  constitute  no  defence.  Since,  therefore, 
want  of  poiver  IS,  the  ^«/y  defence  open  to  the  corporate  maker 
of  such  instruments,  when  they  have  been  negotiated  (as 
almost  invariably  is  the  case  for  value  to  innocent  holders), 
the  question  of  power  is  the  one  around  which  the  principal 
interest  centers,  and  to  which,  in  its  various  phases,  we  shall 
give  our  main  attention.  And  concerning  this  subject,  obvi- 
ously, the  essential  enquiries  are,  whoi  the  power  exists  or 
arises;  wlio  is  to  decide  whether  it  existed  or  had  arisen 
when  the  bonds  were  issued;  and  what  will  estop  the  corpo- 
ration to  set  up  non-compliance  with  antecedent  or  prelim- 
inary conditions,  and  it  is  these  enquiries  that  we  shall  ex- 
amine and  illustrate  chiefly  by  reference  to  the  decisions  of 
the  Supreme  Court  of  the  United  States,  noticing  incidentally 
the  decisions  of  the  State  courts. 

^  Per  Clifford,  J.,  in  St.  Joseph  Township  v.  Rogers,  16  Wall.  644,  659, 
1872.  As  nearly  all  the  cases  in  the  Supreme  Court  have  turned  on  the 
question  of  power,  it  is  not  deemed  material  to  cite  them  in  this  connec- 
tion, as  the  propositions  in  the  text  are  no  longer  the  subject  of  judicial 
controversy. 


l6  THE    LAW    OF    MUNICIPAL    BONDS. 

Sec.  8.  Different  classes  of  bonds  —  Implied  and  express 
power  to  issiie — Recitals — Mode  of  pleadiiig,  see  note. — Nego- 
tiable securities  of  the  kind  here  referred  to  have  been  issued 
by  municipal  corporations  proper  (generally  under  an  express 
power  to  aid  railways,  or  for  gas  works,  water  works  or  spec- 
ified local  improvements,  but  sometimes  under  an  implied 
power),  and  by  counties,  usually  under  express  power  (gener- 
ally to  aid  railways,  or  for  public  buildings,  bridges  or  im- 
provements^'), and  by  organized  toiv7iships  which  are  parts  of 
coi^ties,  under  express  authority,  and  usually  as  a  means  of 
aiding  the  construction  of  railways,  and  by  school  districts, 
under  express  power  to  raise  money  to  erect  school-houses. 
In  some  of  the  Western  states,  counties  have  been  legisla- 
tively made  the  agents  for  the  inhabitants  of  non-incorporated 

='  In  several  of  the  states  power  is  given  to  municipalities  or  counties 
to  issue  bonds  to  a/^  works  of  "  internal  iinproveme7ity  And  under  this 
generic  term,  the  question  has  arisen,  what  are  works  of  internal  im- 
provement ?  The  Supreme  Court  of  Alabama,  in  defining  the  phrase 
"internal  improvements,"  says  :  "Where  internal  improvements  under 
state  authority  are  spoken  of,  it  is  universally  understood  that  works 
within  the  state  by  which  the  public  are  supposed  to  be  benefitted  are 
intended  ;  such  as  the  improvements  of  highways  and  channels  of  travel 
and  commerce."     Mayor  et  al.  of  Watumpka  v.  Newton,  23  Ala.  660. 

The  legislature  of  Nebraska  passed  an  act  "  That  any  county  or  city 
in  the  state  of  Nebraska  is  hereby  authorized  to  issue  bonds  to  aid\xi  the 
construction  of  any  railroad  or  other  work  oi  internal  improvetnent,  to  an 
amount  to  be  determined  by  the  county  commissioners  of  such  county, 
or  the  city  council  of  such  city,  not  exceeding  ten  per  cent,  of  the  as- 
sessed valuation  of  all  taxable  property  in  said  county  or  city,  provided 
the  county  commissioners  or  city  council  shall  first  submit  the  question 
of  issuing  bonds  to  a  vote  of  the  legal  voters  of  said  county  or  city,  in  the 
manner  provided  by  chapter  nine  of  the  Revised  Statutes  of  the  state  of 
Nebraska,  for  submitting  to  the  people  of  a  county  the  question  of  bor- 
rowing money."     Session  Laws  of  1S69,  page  92. 

Under  this  act,  a  county  and  a  precinct  issued  bonds  to  build  a  bridge 
across  the  Platte  river,  and  on  an  application  by  a  taxpayer  to  restrain 
the  collection  of  taxes  levied  to  pay  interest  on  such  bonds,  the  Supreme 
Court  of  Nebraska,  construing  the  above  act  in  the  light  of  the  legislation 
of  the  state,  held  that  a  bridge  was  a  work  of  "  internal  improvement" 
within  the  meaning  of  the  statute,  and  that  under  the  power  to  aid  \.\\q 
county  might  itself  construct  the  bridge.  Union  Pacific  R.  R.  Co.  v. 
Colfax  County,  3  Cent.  Law  Jour.  287  ;  s.  c.  4  Nebraska,  450,  1876. 


THE   LAW   OF   MUNICIPAL   BONDS. 


17 


townships,  and  in  Missouri  for  "strips  of  territory"  to  issue 
bonds  in  the  name  of  the  county,  but  to  be  paid  out  of  the 
property  within  the  specified  township  or  designated  territo- 
rial Hmits  or  strip  of  country.'^''  Reference  is  made  to  this 
subject  here,  in  order  to  observe  that  where  the  bonds  or 
securities  are  issued  under  an  express  power,  the  legislative 
act,  being  the  source  of  the  authority,  measures  and  limits 
the  power  it  confers,  and  the  same  principles  apply  to  the  in- 
struments issued  under  it  by  a)iy  of  these  classes  of  corpora- 
tions, or  quasi  corporations.  But  in  respect  to  all  these  cor- 
porations and  quasi  corporations,  except,  possibly,  municipal 
or  chartered  corporations  proper,  we  suppose  that  there  is 
no  solid  ground  to  contend  that  they  have  any  inherent  or 
general  power  to  issue  commercial  securities,  and  can  only 
do  so  by  virtue  of  express  legislative  authority,  which  must 
exist  in  fact,  and  which  ought  regularly  to  be  recited  in  the 
bond.  And  in  respect  to  municipal  or  chartered  corpora- 
tions, our  opinion,  as  indicated  in  a  preceding  section,  is  that 
they  also  have  no  such  inherent  power,  and  no  power  what- 
ever except  so  far  as  conferred  expressly  or  by  fair  implica- 
tion. This  is  an  important  principle,  and  it  results  from  it 
that  there  is  no  presumption  in  favor  of  the  power  to  issue 
such  securities,  especially  on  the  part  of  quasi  corporations, 
and  it  would  seem  to  follow  from  it  that  if  the  bonds  of  such 
coporations  contain  no  recital  as  to  the  authority  for  their 
issue  or  their  purpose,  there  would  be  no  presumption  in 
favor  of  their  validity,  and  it  would  devolve  on  the  holder  to 
aver  and  show  by  evidence  alitmde  that  the  bonds  were  issued 
for  some  purpose  authorized  by  statute.  And  hence  also,  as 
a  matter  of  pleading,  the  authority  or  power  to  issue  the 
bonds  in  suit  ought  to  appear  on  the  face  of  the  declaration, 
or  by  some  recital  in  the  bonds  made  part  thereof;  that  is, 
*•  Construction  of  the  Missouri  toiunship  railway  aid  act  of  March  23, 
186S,  and  the  rights  and  remedies  of  the  bond-holder.  Jordan  v.  Cass 
Co.,  3  Dillon,  C.  C.  R.  iS^;  Same  v.  Same,  Id.  245  ;  Washburn  v.  Cass 
Co.,  Id.  251;  Harshman  v.  Bates  County,  Id.  150;  s.  c,  in  supreme 
court,  Oct.  Term,  1S75  3  Cent.  Law  Jour.  367,  referred  to  at  large  infra 
sec.  19.  Construction  of  Kansas  legislation,  Thayer  v.  Montgomery  Co., 
3  Dillon,  C.  C.  R.  389,  and  note. 


1 8  THE   LAW   OF    MUNICIPAL   BONDS. 

it  should  thus  appear  that  they  were  issued  for  some  purpose 
authorized  by  statute.^3 

"3 Thayer  V.  Montgomery  Co.,  3  Dillon,  C.  C.  R.  389,  and  note;  Ken- 
nard  v.  Cass  County,  lb.  147  ;  Nashville  v.  Ray,  19  Wall.  468. 

Mode  of  declaring  on  bonds  and  coupons.  Kennard  v.  Cass  County,  3 
Dillon,  C.  C.  R.  147,  and  cases  cited  in  note  on  p.  150;  Thayer  v.  Mont- 
gomery County,  supra. 

Mode  of  pleading  defences.  The  plea  of  the  generalissue  in  assump- 
sit in  states  where  that  mode  of  pleading  is  yet  allowed,  puts  in  issue  the 
question  of  the  authority  of  the  officers  to  issue  the  bonds  and  the  bona 
fides  of  the  plaintiff,  but  presumptively  the  plaintiff  is  a  holder  for  value 
before  maturity,  without  notice  ;  the  contrary  must  be  shown  by  the  de- 
fendant. Chambers  County  v.  Clews,  21  Wall.  317,  1874;  Pendleton 
County  V.  Amy,  13  Wall.  297.  Special  plea  erroneously  held  bad,  con- 
sidered as  amounting  to  the  general  issue,  and  as  the  erroneous  ruling 
was  harmless,  the  judgment  was  not  reversed.     lb. 

Answer  denying  that  plaintiff  is  the  owner,  holder  or  bearer  of  the 
coupons  in  suit  good  on  general  demurrer.  Pendleton  County  v.  Amy, 
13  Wall.  297. 

FVoof  of  execution  of  bond  when  denied  under  oath.  Under  the  legis- 
lation of  Alabama,  non  assumpsit  does  not  involve  the  factum  of  the 
bonds.     Chambers  County  v.  Clews,  21  Wall.  317,  1874. 

Corporation  may  plead  nil  debet  and  non  est  factum.  Grand  Chute  v. 
Winegar,  15  Wall.  355,  1872. 

Remedy  at  law.  Corporation  cannot  be  relieved  against  bond  in 
equity  if  the  ground  for  relief  shows  complete  defence  or  an  adequate 
remedy  at  law.     Grand  Chute  v.  Winegar  (case  in  equity),  15  Wall.  373. 

The  statute  of  limitations  conwnences  to  run  on  coupons  detached  from 
the  bonds  and  negotiated  separately,  from  the  time  the  coupons  mature, 
and  the  operation  of  the  statute,  in  such  a  case,  is  not  deferred  until  the 
maturity  of  the  bonds  to  which  the  coupons  belonged.  This  point  has 
been  expressly  adjudged  by  the  Supreme  Court  in  Clark  v.  Iowa  City,  20 
Wall.  583,  1874,  and  the  prior  decisions  which  had  been  supposed  to  hold 
otherwise,  explained  to  mean  only  that  when  the  bonds  were  specialties, 
the  coupons,  though  detached,  partook  of  the  same  nature,  and  therefore 
the  same  statute  of  limitations  applied  to  both  the  coupons  and  the  bonds ; 
that  is,  if  the  bonds  were  specialties,  so  were  the  coupons,  and  the  statute 
of  limitations  as  to  sealed  instruments,  and  not  the  more  restricted 
statute  applicable  to  simple  contracts,  applied.  Kenosha  v.  Lamson,  9 
Wall.  477  ;  Lexington  v.  Butler,  14  Wall,  282.  Whether  the  statute  com- 
mences to  run  on  imsevcrcd  coupons  from  the  date  of  their  maturity  has 
not  been  decided  by  the  Supreme  Court.  As  to  limitation  statutes,  see 
De  Cordova  v.  Galveston,  4  Texas,  470,  1849;  Underbill  v.  Trustees,  17 
Cal.  172;  Baker  v.  Johnson  County,  33  Iowa,  151. 


THE    LAW    OF    MUNICIPAL    BONDS.  I9 

Sec.  9.  Condition  precedent  to  exercise  of  power — Popular 
vote — Non-complia7ice  with  condition  precedent — Recital — Rc' 
straining  issue  of  bonds. — Generally,  the  power  of  the  muni- 
cipality, county  or  other  local  civil  sub-division  of  the  state, 
to  subscribe  for  the  stock  of  railway  companies  and  issue 
l)onds  in  payment,  is  conferred  upon  certain  officers,  not 
absolutely,  but  on  the  condition  of  a  previous  approving  popu- 
lar vote,  or  the  assent  of  a  majority  or  of  some  greater  pro- 
portion of  the  resident  tax-payers.  If  this  sanction  is  given, 
then  the  officers,  by  the  usual  legislation,  are  authorized  to 
make  the  subscription  and  to  issue  bonds  in  payment  there- 
for. A  very  common  defence  to  such  bonds  consists  in  a 
denial  that  the  condition  precedent,  i.  e.,  the  approving  vote, 
the  assent  of  the  tax-payers,  or  whatever  else  it  may  be,  has, 
in  fact,  been  complied  with,  and  hence,  as  contended,  the 
power  to  issue  the  bonds  did  not  exist,  or  never  arose. 

Where  the  legislation  is  of  this  character, — namely,  requir- 
ing compliance  with  some  such  condition  before  issuing  the 
bonds, — the  Supreme  Court  of  the  United  States  does  not 
hold,  as  we  understand  their  decisions,  that  the  power  can 
be  rightfully  exercised  unless  the  condition  precedent  has 
been  performed.  As  between  the  immediate  parties,  the 
municipality  and  the  railroad  company,  doubtless,  the  en- 
quiry is  open,  and  fully  open,  whether  the  condition  on  which 
the  rightful  exercise  of  the  power  depends  has  been  complied 
with,  and  if  it  has  not  been,  on  due  application,  the  issue  of 
the  bonds  will  be  enjoined,^-*  or  if  they  are  in  the  hands  of  the 
original  party  or  of  holders  with  notice,  an  action  to  enforce 
the  bonds  may,  if  no  estoppel  exists,  be  successfully  de- 
fended.^^ 

In  such  a  case,  there  is  no  legal  ground  for  maintaining  that 
the  action  of  the  local  officers  in  issuing  the  bonds,  or  any 

As  to  rights  and  title  of  purchaser  of  coupons  overdue,  Arents  v.  Com- 
monwealth, 18  Gratt.  (Va.)  750;  Daniel  on  Neg.  Instr.,  sees.  1505.  1506. 

="'As  to  the  duty  of  enjoining  the  issue  of  bonds  on  the  pain  of  being 
estopped  to  set  up  irregularities  in  the  exercise  of  the  power,  see  infra, 
sec.  23. 

'5  Chambers  County  v.  Clews,  21  Wall.  317,  321,  1874. 


20  THE   LAW   OF    MUNICIPAL   BONDS. 

recital  they  may  make  therein,  will  conclude  the  question, 
whether  the  condition  precedent  has  been  performed.  And 
there  is  no  decision  of  the  Supreme  Court  of  the  United 
States  in  conflict  with  this  statement  of  the  law,  but  several 
which  support  it.^^ 

Sec.  io.  Estoppel  by  recital  to  show  7io7i-covipliance  with 
conditions  precedent — Knox  County  v.  Aspinwall. — When  the 
bonds  have  been  issued  and  sold  in  the  market,  and,  before 
maturity,  have  come  for  value,  and  without  notice,  into  the 
hands  of  innocent  holders,  another  element  of  great  import- 
ance may,  according  to  the  doctrine  of  the  Supreme  Court, 
be  introduced  into  the  transaction,  as  respects  compliance 
with  conditions  precedent, — the  element  of  estoppel.  This  is 
so  important  in  its  practical  relations  to  the  subject  as  to  re- 
quire careful  and  minute  consideration.  Conceding  that  the 
rightful  exercise  of  the  power  to  issue  the  bonds  depends 
upon  a  condition  precedent,  for  example,  a  popular  vote  in- 
favor  of  the  proposition,  when,  how  and  by  whom  is  it  to  be  as- 
certained whether  the  conditiojt  precede?it  has  been  performed. 

Is  it  to  be  ascertained,  once  for  all,  before  the  bonds  are 
issued  ?  Or  is  it  open  to  enquiry  and  contestation  in  every 
action  upon  a  coupon  or  bond  ?  Is  the  municipality  estopped, 
in  favor  of  a  bona  fide  holder  of  the  bonds,  from  setting  up 
this  defence?  and  in  what  cases  will  the  estoppel  be  available 
in  favor  of  the  holder?  These  are  grave  questions,  and  cases 
involving  them  have  been  frequently  before  the  Supreme  Court 
— the  first  and  leading  case  being  The  Commissioners  of  Knox 
County  v.  Aspinwall.''^     The  case  just  cited  has  been  fre- 

"*  Chambers  County  v.  C\(tvfs,  supra.  That  court  has  several  times 
adverted  to  the  duty  of  the  corporation  or  tax-payer  to  interfere  by  in- 
junction to  restrain  the  issue  of  bonds  where  the  statute  has  not  been 
comphed  with.  Injunctiott  lies  to  restrain  issue  of  bonds  where  there  has 
been  a  material  departure  from  the  statute.  Union  Pacific  R.  R.  Co.  v. 
Lincoln  County,  3  Dillon,  C.  C.  R.  300,  1873;  Same  v,  Merrick,  lb.  359; 
Railroad  Co.  v.  Hartford,  58  Maine,  23;  Dillon,  Munic.  Corp.  (2d  Ed.), 
sec.  108,  and  cases  cited.  "  In  cases  arising  before  the  issue  of  the  bonds, 
estoppel  has  no  place,  and  the  sound  doctrine  is,  that  compliance  with  all 
substantial  or  material  conditions  is  essential."     lb. 

»?  Commissioners  of  Knox  County  v.  Aspinwall,  21   How.  539,  1858. 


THE  LAW  OF  MUNICIPAL  BONDS.  21 

quently  referred  to  and  followed,  and  one  of  the  two  grounds 
on  which  it  rests,  if  not,  indeed,  both  of  them,  still  has  the 
approval  of  the  court,  as  will  be  seen  by  one  of  its  most  recent 
judgments.^^ 

The  case  of  Knox  County  v.  Aspinwall,  and  the  numerous 
cases  in  the  Supreme  Court  which  had  followed  it  down  to 
1873,  were  considered  by  the  writer  of  the  present  article  to 
establish  the  following  principle  :  "  If  upon  a  true  construc- 
tion of  the  legislative  enactment  conferring  the  authority 
(viz.  to  issue  municipal  bonds  upon  certain  conditions),  the 
corporation,  or  certain  officers,  or  a  given  body  or  tribunal, 
are  invested  with  power  to  decide  whether  the  condition 
precedent  has  been  complied  with,  then  it  may  well  be  that 
their  determination  of  a  matter  i7i  pais  which  they  are  author- 
ized to  decide,  will,  in  favor  of  the  bondholder  for  value,  bind 
the  corporation. "-9 

"This,"  says  Mr.  Justice  Strong,  in  one  of  the  latest  cases, 
after  quoting  the  above  language,  "  is  a  very  cautious  state- 
ment of  the  doctrine  "  of  the  Supreme  Court.  And  he  adds, 
"  It  may  be  re-stated  in  a  slightly  different  form.  Where  leg- 
islative authority  has  been  given  to  a  municipality,  or  to  its 
officers,  to  subscribe  for  the  stock  of  a  railroad  company,  and 
TTie  reader  will  find  a  brief  but  careful  statement  of  this  case  (which  we 
omit  here  to  save  space)  in  Dillon  on  Munic.  Corp.  (second  edition)  sec. 
417.  The  more  important  cases  in  which  Knox  County  v.  Aspinwall  has 
been  cited  and  followed  are :  Moran  v.  Miami  County,  1  Black,  722, 
724.  1862;  Supervisors  v.  Schenck,  5  Wall.  772,  1866;  Rogers  v.  Bur- 
lington, 3  Wall.  654;  Woods  V.  Lawrence  County,  i  Black,  386;  Mercer 
County  V.  Racket,  i  Wall.  83;  Meyer  v.  Muscatine,  i  Wall.  3S5,  393; 
Van  Hostrup  v.  Madison  City,  i  Wall.  291  ;  Bissell  v.  Jeffersonville,  24 
How.  287  ;  Gelpcke  v.  Dubuque,  i  Wall.  175,  203;  Pendleton  County  v. 
Amy,  18  Wall.  297,  1871  ;  St.  Joseph  Township  v.  Rogers,  16  Wall. 
644,  1872;  Lexington  v.  Butler,  14  Wall.  284;  Grand  Chute  v.  Wine- 
gar,  15  Wall.  572,  1872.     The  yet  more  recent  cases  are  referred  to  infra, 

^  The  Town  of  Coloma  v.  Evans,  Oct.  Term,  1S75,  3  Cent.  Law  Jour. 
325.  The  Case  of  Coloma  v.  Evans,  as  to  the  local  officers  being  con- 
stituted a  tribunal  to  determine  whether  the  condition  precedent  had 
t»een  complied  with,  was  cited  and  approved  in  the  subsequent  case,  at 
the  same  term,  of  Venice  v.  Murdock,  3  Cent.  Law  Jour,  322.  See, 
also,  infra,  sec.  13. 

"9  Dillon  on  Munic.  Corp.  (second  edition)  sec.  419. 


22  THE   LAW   OF   MUNICIPAL   BONDS. 

to  issue  municipal  bonds  in  payment,  but  only  on  some  prece- 
dent condition,  such  as  a  popular  vote  favoring  the  subscrip- 
tion, and  where  it  may  be  gathered  from  the  legislative  enact- 
ment that  the  officers  of  the  municipality  were  invested  with 
power  to  decide  whether  the  condition  precedent  has  been 
complied  with,  their  recital  that  it  has  been,  made  in  the 
bonds  issued  by  them  and  held  by  a  bo7ia  fide  purchaser,  is 
conclusive  of  the  fact,  and  binding  upon  the  municipality,  for 
the  recital  is  itself  a  decision  ot  the  fact  by  the  appointed 
tribunal.  In  Bissell  v.  Jeffersonville,  24  How.  287,  it  appeared 
that  the  common  council  of  the  city  were  authorized  by  the 
legislature  to  subscribe  for  stock  in  a  railroad  company,  and 
to  issue  bonds  for  the  subscription,  on  the  petition  of  three- 
fourths  of  the  legal  voters  of  the  city.  The  council  adopted 
a  resolution  to  subscribe,  reciting  in  the  preamble  that  more 
than  three-fourths  of  the  legal  voters  had  petitioned  for  it^ 
and  authorized  the  mayor  and  city  clerk  to  sign  and  deliver 
bonds  for  the  sum  subscribed.  The  bonds  recited  that  they 
were  issued  by  authority  of  the  common  council,  and  that  three- 
fourths  of  the  legal  voters  had  petitioned  for  the  same,  as  re- 
quired by  the  charter.  In  a  suit  subsequently  brought  by 
an  innocent  holder  for  value,  to  recover  the  amount  of  unpaid 
coupons  for  interest,  it  was  held  inadmissible  for  the  defend- 
ants to  show  that  three-fourths  of  the  legal  voters  of  the  city 
had  not  signed  the  petition  for  the  stock  subscription.  A 
similar  ruling  was  made  in  Van  Hostrup  v.  Madison  City,  I 
Wallace.  291,  and  in  Mercer  County  v.  Racket,  i  Wallace, 
83.  The  same  principle  has  recently  been  asserted  in  this 
court,  after  very  grave  consideration,  and  it  must  be  consid- 
ered as  settled.  In  St.  Joseph  Township  v.  Rogers,  16  Wall. 
644,  it  is  stated  thus  :  *  Power  to  issue  bonds  to  aid  in  the 
construction  of  a  railroad  is  frequently  conferred  upon  a  mu- 
nicipality in  a  special  manner,  or  subject  to  certain  regula- 
tions, conditions  or  qualifications,  but  if  it  appears  by  their 
recitals  that  the  bonds  were  issued  in  conformity  with  these 
regulations,  and  pursuant  to  those  conditions  and  qualifica- 
tions, proof  that  any  or  all  these  recitals  were  incorrect  will 
not  constitute  a  defence  for  the  corporation  in  a  suit  on  the 


THE  LAW  OF  MUNICIPAL  BONDS.  2$ 

bonds  or  coupons,  if  it  appears  that  it  was  the  sole  province 
of  the  municipal  officers  who  executed  the  bonds  to  decide 
whether  or  not  there  had  been  an  antecedent  compliance  with 
the  regulation,  condition  or  qualification,  which  it  is  alleged 
was  not  fulfilled.'  There  is  nothing  in  the  case  of  Marsh  v. 
Fulton  County,  lo  Wall.  6y6,  at  all  inconsistent  with  the  rule 
thus  asserted.  In  that  case  there  were  Jio  recitals  in  the  bonds, 
and  there  was  no  decision  that  the  conditions  precedent  to  a 
subscription,  or  to  the  gift  of  authority  to  subscribe,  had  been 
performed.  The  question  was,  therefore,  open.  What  we 
have  said  disposes  of  the  present  case  without  the  necessity 
of  particular  consideration  of  the  matters  urged  in  the  argu- 
ment of  the  defendant  below.  It  was  inadmissible  to  show 
what  was  attempted  to  be  shown,  and  even  if  it  had  been  ad- 
missible, the  effort  to  assimilate  the  case  to  Marsh  v,  Fulton 
County  would  fail.  There  the  subscription  was  for  the  stock 
of  a  different  corporation  from  that  for  which  the  people  had 
voted."3° 

3° Town  of  Coloma  v.  Evans,  supra.  In  this  case,  legislative  authority 
■was  given  to  the  town  to  make  the  subscription  and  issue  the  bonds  on 
the  previous  sanction  of  a  popular  vote,  to  be  ascertained,  as  the  court 
construed  the  enactment,  by  the  officers  of  the  town,  who  were  empow- 
ered to  execute  the  bonds.  The  bonds  were  executed  in  due  form  by 
the  proper  officers,  and  duly  registered  with  the  auditor  of  state,  and 
contained  the  recital  that  they  "  are  issued  under  and  by  virtue  of  the  act 
incorporating  the  railroad  company ,"  approved  March  24th,  1869,  "and 
in  accordance  with  the  vote  of  the  electors  of  said  township  of  Coloma,  at 
a  regular  election  held  July  2S,  iS6g,  in  accordance  with  said  law." 

The  scope  and  effect  of  the  doctrine  of  the  court  are  illustrated  by  the 
following  brief  separate  opinion  in  the  case,  given  by  Mr.  Justice  Brad- 
ley, who  says  : 

"  I  dissent  from  the  opinion  of  the  court  in  this  case,  so  far  as  it  may 
be  construed  to  reafifirm  the  first  point  asserted  in  the  case  of  Knox 
County  v.  Aspinwall,  to  wit :  that  the  mere  execution  of  a  bond  by  offi- 
cers charged  with  the  duty  of  ascertaining  whether  a  condition  precedent 
has  been  performed,  is  conclusive  proof  of  its  performance.  If,  when 
the  law  requires  a  vote  of  tax-payers,  before  bonds  can  be  issued,  the 
supervisor  of  a  township,  or  the  judge  of  probate  of  a  county,  or  other 
officer  or  magistrate,  is  the  officer  designated  to  ascertain  whether  such 
vote  has  been  given,  and  is  also  the  proper  officer  to  execute  and  who 
does  execute  the  bonds ;  and  if  the  bonds  themselves  contain  a  state- 


24  THE    LAW    OF    MUNICIPAL    BONDS. 

Sec.  II.  Estoppel  by  recital — Failure  to  give  notice  of  dec- 
tion,  oriioticefor  the  required  time. — As  showing  the  appHca- 
cation  and  effect  of  the  doctrine  stated  in  the  preceding  sec- 

ment  or  recital  that  such  vote  has  been  given,  then  the  bo7ia  fide  pur- 
chaser of  the  bonds  need  go  back  no  further.  He  has  a  right  to  rely  on  the 
statement  as  a  determination  of  the  question.  But  a  mere  execution  and 
issue  of  the  bonds  without  such  recital,  is  not,  in  my  judgment,  conclu- 
sive. It  may  be  prima  facie  sufficient ;  but  the  contrary  may  be  shown. 
This  seems  to  me  to  be  the  true  distinction  to  be  taken  on  this  subject, 
and  I  do  not  think  that  the  contrary  has  ever  been  decided  by  this  court. 
There  have  been  various  dicta  to  the  contrary,  but  the  cases,  when  care- 
fully examined,  will  be  found  to  have  had  all  the  prerequisites  necessary 
to  sustain  the  bonds,  according  to  my  view  of  the  case.  This  view  was 
distinctly  announced  by  this  court  in  the  case  of  Lynde  v.  The  County 
ofWinnebago,  16  Wall.  13.  In  the  case  now  under  consideration,  there 
is  a  sufficient  recital  in  the  bond  to  show  that  the  proper  election  was 
held  and  the  proper  vote  given  ;  and  the  bond  was  executed  by  the  offi- 
cers whose  duty  it  was  to  ascertain  these  facts.  On  this  ground,  and  this 
alone,  I  concur  in  the  judgment  of  the  court." 

In  the  same  case  Mr.  Justice  Strong,  in  the  main  opinion,  after  resting 
the  judgment  on  the  principle  stated  in  the  text,  makes  this  reference  to 
the  case  of  Knox  County  v.  Aspinwall : 

"  Indeed,  some  of  our  decisions  have  gone  farther.  In  the  leading  case 
of  Knox  County  v.  Aspinwall,  21  How.  544,  the  decision  was  rested  upon 
two  grounds.  One  of  them  was  that  the  mere  issue  of  the  bonds  con- 
taining a  recital  that  they  were  issued  under  and  in  pursuance  of  the 
legislative  act,  was  a  sufficient  basis  for  an  assumption  by  the  purchaser 
that  the  conditions  on  which  the  county  (in  that  case)  was  authorized  to 
issue  them  had  been  complied  with,  and  it  was  said  the  purchaser  was 
not  bound  to  look  farther  for  evidence  of  such  compliance,  though  the 
recital  did  not  affirm  it.  This  position  was  supported  by  reference  to 
the  Royal  British  Bank  v.  Turquand,  6  Ellis  &  Blackburn,  327,  a  case  in 
the  Exchequer  Chamber,  which  fully  sustains  it,  and  the  decision  in 
which  was  concurred  in  by  all  the  judges.  This  position  taken  in  Knox 
County  V.  Aspinwall,  has  been  more  than  once  reaffirmed  in  this  court. 
It  was  in  Moran  v.  Miami  County,  2  Black,  732 ;  in  Mercer  County  v_ 
Ilacket,  I  Wall.  83 ;  in  Supervisors  v.  Schenk,  5  Wall.  784,  and  in 
Meyer  v.  Muscatine,  i  Wall.  384.  It  has  never  been  overruled,  and 
whatever  doubts  may  have  been  suggested  respecting  its  correctness  to 
the  full  extent  to  which  it  has  sometimes  been  announced,  there  should 
be  no  doubt  of  the  entire  correctness  of  the  other  rule  asserted  in  Knox 
County  V.  Aspinwall.  That,  we  think,  has  been  so  firmly  seated  in 
reason  and  authority  that  it  cannot  be  shaken." 

In  further  explanation  we  may  remark  that  the  recital  in  Knox  County 


THE    LAW    OF    MUNICIPAL    BONDS.  2$ 

tion  as  to  compliance  with  conditions  precedent — particularly 
in  respect  of  the  very  common  one  of  a  previous  election  or 
the  assent  of  a  given  proportion  of  the  tax-payers — a  brief 
reference  may  be  made  to  some  of  the  most  recent  decisions 
of  the  Supreme  Court,  in  which  it  is  evident  that  the  whole 
subject  again  underwent  thorough  consideration.  In  Hum- 
boldt Township  v.  Long,  bonds  issued  under  legislative  au- 
thority requiring  a  popular  vote  at  an  election  of  which  thirty 
days  notice  were  to  be  given,  and  which  contained  a  recital 
(made  by  the  officers  having  the  power,  as  construed,  to  de- 
termine whether  the  conditions  of  fact  had  been  complied 
with  and  to  issue  the  bonds)  to  the  effect  that  they  were 
**  issued  in  piirstiance  of  ajid  in  accordatice  with  the  act  of  the 
legislature,"  stating  it,  were  held  not  invalid  in  the  hands  of 
a  holder  for  value,  before  due,  without  notice,  because  the 
election  was  held  within  less  than  thirty  days  after  the  date 
of  the  order  providing  for  it.^' 

V.  Aspinwall  was  in  these  words:  "  This  bond  is  issued  in  part  payment 
of  a  subscription  of  $200,000,  by  the  said  Knox  county,  to  the  capital 
stock,  etc.,  by  order  of  the  board  of  commissioners  in  pursuance  of  the 
3d  section  of  the  act,  etc.,  approved  January  15,  1849."  The  act  required 
the  previous  sanction  of  a  majority  of  the  qualified  voters  of  the  county, 
and  the  defence  was  failure  to  comply  with  the  statute  in  respect  to  the 
notices  for  the  election.  And  the  proposition  which  has  been  doubted 
elsewhere,  and  from  which  Mr.  Justice  Bradley  dissents,  is  contained  in 
the  following  sentence  extracted  from  the  opinion  of  Mr.  Justice  Nelson 
in  that  case,  who,  after  quoting  the  foregoing  recital  in  the  bond  (which 
it  will  be  seen  does  not  expressly  state  that  there  was  r.n  election),  says : 
■"  The  purchaser  was  not  bound  to  look  further  for  evidence  of  a  com- 
pliance with  the  conditions  to  the  grant  of  the  power."  In  Moran  v. 
Miami  County,  2  Black,  722,  732,  the  court  say:  "We  think  and  adjudge 
that  the  recitals  in  the  bonds  are  conclusive  [of  compliance  with  the 
precedent  condition],  constituting  an  estoppel  iti  pais  upon  the  defend- 
ants in  this  suit."  Other  cases  to  the  same  effect  in  the  Supreme  Court 
will  be  adverted  to  as  we  proceed.  In  Marcy  v.  Oswego  Township,  U. 
.S.  Sup.  Court,  Oct.  Term,  1S75,  3  Cent.  Law  Jour.,  389,  the  doctrine  as 
<:ontaincd  in  the  text  was  reasserted  almost  in  the  same  language. 

3'  Humboldt  Township  v.  Long,  U.  S.  Sup.  Court,  Oct.  Term,  1S75, 
3  Cent.  Law  Jour.  494.  The  court  thus  states  the  ground  of  its  de- 
cision :  "  The  board  of  county  commissioners,  who  caused  the  bonds 
to  be  issued,  were  constituted  the  authority  to  determine  whether  the 
•conditions  of  fact,   made  by  the  statute  precedent  to  the  exercise  of 


26  THE   LAW    OF   MUNICIPAL   BONDS. 

The  principle  adopted  and  the  reasoning  of  the  court  hy 
which  it  is  sustained,  lead,  it  would  seem,  logically  to  the  con- 
clusion (although  there  is,  perhaps,  no  case  in  the  Supreme 
Court  where  the /acts  required  a  direct  decision  of  the  point) 
that  where  the  power  to  issue  the  bonds  is  given  upon  the 
condition  of  a  previous  vote  in  favor  of  the  proposition,  that 
the  public  or  municipal  officers  can,  zvhere  no  vote  whatever- 
has  been  taken,  or  the  proposition  has  been  voted  dotvn,  bind  the 
county  or  municipality  by  \\\e  false  recitals  in  such  unauthor- 
ized bonds,  provided  they  are  issued  by  the  officers  entrusted 
by  the  statute  with  the  power.  Under  this  doctrine,  limita- 
tions upon  the  exercise  of  the  power  intended  tcp  prevent 
fraud  and  to  secure  a  compliance  with  the  conditions  upon, 
which  the  bonds  are  authorized,  are  of  little  practical  value^ 
and  generally  prove  illusory. 

So  in  Coloma  v.  Evans,  supra — a  case  from  Illinois — the 

the  authority  granted  to  execute  and  issue  the  bonds,  had  been  per- 
formed, and  their  recital  in  the  bonds  issued  by  them  is  conclusive  in. 
a  suit  against  the  township  brought  by  a  bona  fide  holder."  (So  held, 
in  Marcy  v.  Township  of  Oswego,  at  this  term,  3  Cent,  Law  Jour.  389;; 
see  infra,  sec.  13.)  "  In  so  ruling  we  but  decided  what  had  often 
before  been  decided,  and  what  ought  to  be  regarded  as  a  fixed  rule. 
Applying  it  to  the  solutifn  of  the  question  now  before  us,  it  is  plain  that 
the  bonds  are  not  invalid  because  all  the  notice  of  the  popular  election 
was  not  given  which  the  legislative  act  directed.  The  election  was  a 
step  in  the  process  of  execution  of  the  power  granted  to  issue  bonds  in 
payment  of  a  municipal  subscription  to  the  stock  of  a  railroad  company.. 
It  did  not  itself  confer  the  power.  Whether  that  step  had  been  taken 
or  not,  and  whether  the  election  had  been  regularly  conducted,  with  suf- 
ficient notice,  and  whether  the  requisite  majority  of  votes  had  been  cast 
in  favor  of  a  subscription,  and  consequent  bond  issue,  were  questions 
which  the  law  submitted  to  the  board  of  county  commissioners  and  which 
it  was  necessary  for  them  to  answer  before  they  could  act.  In  the  pres- 
ent case  the  board  passed  upon  them  and  issued  the  bonds,  asserting  by 
the  recitals  that  they  were  issued  '  in  pursuance  of  and  in  accordance 
with  the  act  of  the  legislature.'  Thus  the  plaintiff  below  took  them, 
without  knowledge  of  any  irregularities  in  the  process  through  which  the 
legislative  authority  was  exercised,  and  relying  upon  the  assurance  given 
by  the  board  that  the  bonds  had  been  issued  in  accordance  with  the 
law.  In  his  hands,  therefore,  they  are  valid  instruments."  See  Towa 
of  Elmswood  v.  Marcy,  U.  S.  Sup.  Court,  Oct.  i,  1875,  see  infra,  sec.  13; 
St.  Joseph  Township  v.  Rogers,  16  Wall.  644,  664,  1872. 


THE   LAW    OF   MUNICIPAL   BONDS.  *27" 

local  officers  of  the  town  were  empowered  by  the  statute  to 
issue  bonds,  provided  a  majority  of  the  voters  of  the  town 
voted  for  the  subscription,  which  fact,  the  statute  provided, 
shall  appear  by  the  statement  of  the  town  clerk,  filed  with 
the  county  clerk,  showing  the  vote  given,  the  amount  voted, 
and  the  rate  of  interest:  it  was  held  in  favor  of  a  bona  fide 
owner  of  the  bonds  issued  containing  a  recital  of  an  election, 
that  such  an  owner  need  not  look  beyond  the  recitals  made 
in  the  bonds  by  the  local  officers  authorized  to  issue  them 
for  evidence  of  the  existence  of  the  facts  in  pais  thus  recited, 
the  decision  and  declaration  of  that  decision  in  the  bonds 
being  conclusive  upon  the  town.  The  court  said  :  "After  all, 
this  is  not  an  open  question,  as  between  a  bona  fide  holder 
of  the  bonds  and  the  township,  whether  all  the  prerequisites 
to  their  issue  have  been  complied  with.  Apart  from  and  be-^ 
yond  the  reasonable  presumption  that  the  officers  of  the  law, 
the  township  officers,  discharged  their  duty,  the  matter  has 
passed  into  judgment.  The  persons  appointed  to  decide 
whether  the  necessary  prerequisites  to  their  issue  had  been 
completed  have  decided  and  certified  their  decision.  They 
have  declared  the  contingency  to  have  happened  on  the  oc- 
currence of  which  the  authority  to  issue  the  bonds  was  com- 
plete. Their  recitals  are  such  a  decision,  and  beyond  those 
a  bona  fide  purchaser  is  not  bound  to  look  for  evidence  of  the 
existence  of  things  in  pais.  He  is  bound  to  know  the  law 
conferring  upon  the  municipality  power  to  give  the  bonds  on 
the  happening  of  a  contingency,  but  whether  that  has  hap-^ 
pencd  or  not  is  a  question  of  fact,  the  decision  of  which  is 
by  the  law  confided  to  others,  to  those  most  competent  to 
decide  it,  and  which  the  purchaser  is,  in  general,  in  no  con- 
dition to  decide  for  himself." 

Sec.  12.  Conditio):  precedent — Onus  probandi — Estoppel  by 
recital. — In  another  important  case,  it  appeared  that  legisla- 
tive authority  was  given  to  certain  officers  of  a  town  to  bor- 
row money  to  aid  the  building  of  a  railway,  and  to  issue 
bonds  therefor,  provided  the  written  assent  of  two-thirds  of 
the  resident  tax-payers  should  be  previously  obtained  by  said 
tov/n  officers  and  filed  in  the  county  clerk's  office,  with  aa 


28  THE   LAW   OF   MUNICIPAL   BONDS. 

affidavit  of  such  officers  verifying  such  assent.  A  list  of  as- 
senting tax-payers  was  filed  in  the  clerk's  office,  and  also  the 
required  affidavit;  bonds  were  issued  and  were  in  the  hands 
of  a  holder  for  value  :  on  the  trial  the  question  arose  whether 
the  plaintiff  must  prove  the  signatures  to  the  assent  to  be 
genuine,  and  it  was  held  by  the  Supreme  Court  of  the  United 
States,  denying  Starin  v.  Genoa,  and  Gould  v.  Sterling,  23 
K.  Y.  439,  456,  that  no  such  onus  rested  on  him ;  that  the 
town  officers  were  created  a  tribunal  to  determine  whether 
two-thirds  of  the  resident  tax-payers  had  assented,  and  that 
on  their  decision  the  purchaser  might  rely  without  looking 
further,  and  that  the  town  was  concluded,  in  favor  of  an  in- 
nocent holder,  from  denying  that  the  condition  precedent 
had  been  performed.s^ 

3^  Town  of  Venice  v.  Murdock,  U.  S.  Sup.  Court,  Oct.  Term,  1875,  3 
Cent.  Law  Jour,  322.  In  The  People  v.  Mead,  36  N.  Y.  224,  1867,  the 
decision  in  Starin  v.  Genoa  and  Gould  v.  Sterling  was  adhered  to  by  the 
Court  of  Appeals  of  New  York,  although  the  court  admitted  it  was  con- 
trary to  the  decisions  of  the  Supreme  Court  of  the  United  States  as  to  the 
evidence  of  the  assent  of  the  tax-payers.  In  Venice  v.  Murdock,  supra, 
Mr.  Justice  Strong,  speaking  of  Starin  v.  Genoa  and  Gould  v.  Sterling, 
says  :  "  These  decisions  are  in  conflict  with  the  rulings  of  this  court  in 
Bissell  V.  Jeffersonville,  24  How.  287 ;  Knox  County  v.  Aspinwall.  21 
How.  539  ;  Mercer  County  v.  Hackett,  i  Wall.  83,  and  other  cases  which 
we  have  cited.  They  are  in  conflict  also  with  decisions  in  other  state 
courts.  Society  for  Savings  v.  New  London,  29  Conn.  174  ;  Railroad 
Company  v.  Evansville,  15  Ind.  395;  Commissioners  v.  Nichols,  14 
Ohio  (n.  s.)  360.  We  have  carefully  considered  the  reasons  given  for  the 
judgments  in  the  New  York  cases,  without  being  convinced  by  them. 
They  ignore  the  paramount  purpose  for  which  the  bonds  were  authorized 
by  the  legislature,  and  they  treat  the  written  assent  of  the  taxables  as 
the  authority  to  the  township  officers,  when,  in  fact,  the  power  was  given 
by  the  legislature,  and  it  was  only  left  to  the  town  to  determine  by  the 
action  of  two-thirds  of  the  resident  taxables  whether  the  supervisors  and 
commissioners  might  act  under  the  power.  In  Gould  v.  Sterling  the  leg- 
islative act  required  no  affidavit  to  be  filed  with  a  statement  of  the  assent- 
ing tax-payers,  and  in  Starin  v.  Genoa  the  affidavit  filed  was  regarded 
as  merely  verifying  that  the  persons  whose  names  appeared  on  the  as- 
sents comprised  two-thirds  of  all  the  resident  tax-payers.  But  it  is  ob- 
vious that  if  no  more  than  this  was  meant  by  the  required  affidavit,  it 
was  wholly  useless,  for  the  assessment  rolls  of  the  township  would  have 
shown  as  much."     And  the  rule,  as  stated  in  Dillon  on  Munic.  Corp. 


THE    LAW    OF    MUNICIPAL    BONDS.  2g> 

Sec.  13.  Estoppel  by  recital  to  set  up  defence  of  an  over- 
issue contrary  to  the  enabling  act. — Among  the  limitations,  or 
attempted  limitations,  upon  the  exercise  of  the  power  to  issue 
bonds,  one  not  unfrequently  provided  is,  that  the  amount 
voted  or  issued  shall  not  exceed  a  specified  proportion  of  the 
taxable  property  of  the  municipality,  or  such  a  sum  as  will 
require  a  greater  levy  of  taxes  than  a  specified  rate  on  the 
taxable  property  to  pay  the  annual  interest  on  the  bonds. 
The  effect  of  a  disregard  of  this  limitation  by  the  officers  en- 
trusted by  the  statute  with  the  exercise  of  the  power,  came 
for  the  first  time  before  the  Supreme  Court  at  the  October 
term,  1875,  in  a  case  arising  under  the  legislation  of  Kansas.^? 

sees.  418,  419,  is  approved.  The  case,  Venice  v.  Murdock,  is  so  im- 
portant in  overturning,  so  far  as  the  Federal  courts  are  concerned,  the 
judgment  of  the  Court  of  Appeals  of  New  York,  and  as  respects  the  prop- 
osition it  establishes,  that  we  reproduce  the  additional  reasons  given  by 
the  Supreme  Court  in  support  of  its  judgment:  "It  is  very  obvious," 
says  Strong,  J.,  "  that  if  the  act  of  the  legislature  which  authorized  an 
issue  of  bonds  in  aid  of  the  construction  of  the  railroad  on  the  written 
assent  of  two-thirds  of  the  resident  tax-payers  of  the  town  intended  that 
the  holder  of  the  bonds  should  be  under  obligation  to  prove  by  parol 
evidence  that  each  case  of  the  two  hundred  and  fifty-nine  names  signed 
to  the  written  assent  was  a  genuine  signature  of  the  person  who  bore  the 
name,  the  proffered  aid  to  the  railroad  company  was  a  delusion.  No 
sane  person  would  have  bought  a  bond  with  such  an  obligation  resting 
upon  him  whenever  he  called  for  payment  of  principal  or  interest.  If 
such  was  the  duty  of  the  holder,  it  was  always  his  duty.  It  could  not  be 
performed  once  for  all.  The  bonds  retained  in  the  hands  of  the  company 
would  have  been  no  help  in  the  construction  of  the  road.  It  was  only 
because  they  could  be  sold  that  they  were  valuable.  Only  thus  could 
they  be  applied  to  the  construction.  Yet  it  is  not  to  be  doubted  the  leg- 
islature had  in  view  and  intended  to  give  substantial  aid  to  the  railroad 
company,  if  a  sufficient  number  of  the  ta.\-payers  assented.  They  must 
have  contemplated  that  the  bonds  would  be  offered  for  sale,  and  it  is  not 
to  be  believed  they  intended  to  impose  such  a  clog  upon  their  salable- 
ness  as  would  rest  upon  it  if  every  person  proposing  to  purchase  was 
required  to  enquire  of  each  one  whose  name  appeared  to  the  assent 
whether  he  had  in  fact  signed  it." 

33Marcy  v.  Township  of  Oswego,  MSS.  U.  S.  Sup.  Cotnt,  Oct.  term, 
1^75,  3  Cent.  Law  Jour.  3S9.  The  legislative  provision  is  essential  to  an 
accurate  understanding  of  the  judgment  and  view  of  the  court.  The  act 
of  the  legislation  under  which  the  bonds  purported  to  have  been  issued.. 


30  THE    LAW    OF    MUNICIPAL    BONDS. 

The  bonds  were  duly  executed,  and  contained  a  recital  of 
the  act,  and  that  they  were  issued  "zV/  virtue  of  and  in  ac- 
-cordajicc  "  with  it,  and  "  in  pursuance  of  aiid  in  accordance 
with  the  vote  of  three-fifths  of  the  legal  voters  of  the  town- 
-ship,  at  an  election  to  be  held  on  "  a  specified  day.  The 
plaintiff  was  a  bo7ia  fide  holder  for  value,  without  notice. 
The  defence  was  that  they  were  voted  and  issued  at  one 
time,  as  one  act,  and  in  payment  of  one  subscription  in  excess 
of  the  amount  authorized  by  the  statute.  The  circuit  justice 
of  the  United  States  for  the  circuit  distinguished  the  case 
from  Knox  County  v.  Aspinwall,  before  referred  to,  on  the 
ground  that  the  statute  imposing  the  limitation,  the  order  for 
the  election,  the  proposition  submitted,  the  order  for  the 
issue  of  the  bonds  and  the  latest  assessment  roll  were  not, 
properly,  matters  in  pais,  but  were  all  public,  all  open  and 
all  accessible,  and  all  of  record,  and  if  consulted  by  the  pur- 
chaser would  have  shown  the  bonds  to  have  been  voted  and 
issued  in  violation  of  the  express  limitation  upon  the  power 
•contained  in  the  statute.  But  the  judgment  of  the  circuit 
court  was  reversed,  three  judges  dissenting,  and  the  defence 
held  unavailing.  The  case  was  considered  to  fall  within  the 
principle  of  the  previous  decisions.  Mr.  Justice  Strong, 
speaking  for  the  court,  after  stating  the  facts,  as  wc  have 

was  passed  February  25,  1870.  Laws  of  Kansas,  1870,  p.  189.  The 
first  section  enacted  that  whenever  fifty  of  the  quahfied  voters,  being 
freeholders,  of  any  municipal  township  in  any  county  should  petition 
the  board  of  county  commissioners  of  such  county  to  submit  to  the  quali- 
fied voters  of  the  township  a  proposition  to  take  stock  in  the  name  of 
such  township,  in  any  railroad  proposed  to  be  constructed  into  or 
through  the  township,  designating  in  the  petition,  among  other  things, 
the  amount  of  stock  proposed  to  be  taken,  it  should  be  the  duty  of  the 
board  to  cause  an  election  to  be  held  in  the  township  to  determine 
whether  such  subscription  should  be  made  ;  provided,  that  the  amount 
of  bonds  voted  by  any  township  should  not  be  above  such  a  sum  as 
would  require  a  levy  of  more  than  one  per  cent,  per  annum  on  the  tax- 
able property  of  such  township  to  pay  the  yearly  interest.  The  second 
section  directed  the  board  of  county  commissioners  to  make  an  order  for 
holding  the  election  contemplated  in  the  preceding  section,  and  to  specify 
therein  the  amount  of  stock  proposed  to  be  subscribed,  and  also  to  pre- 
scribe the  form  of  the  ballots  to  be  used.    The  fifth  section  enacted  that 


THE   LAW    OF    MUNICIPAL    BONDS.  31 

[given  them,  observed:  "In  view  of  these  facts,  and  of  the 
-decisions  heretofore  made  by  this  court,  the  question  can  not 
be  considered  an  open  one.  We  have  recently  reviewed  the 
subject  in  the  case  of  The  Town  of  Coloma  v.  Evans,  {supra, 
sec.  lo,)  and  re-asserted  what  had  been  decided  before,  namely, 
that  where  legislative  authority  has  been  given  to  a  munici- 
pality to  subscribe  for  the  stock  of  a  railroad  company,  and 
to  issue  municipal  bonds  in  payment  of  the  subscription,  on 
the  happening  of  some  precedent  contingency  of  fact,  and 
where  it  may  be  gathered  from  the  legislative  enactment  that 
the  officers  or  persons  designated  to  execute  the  bonds  were 

if  three-fifths  of  the  electors  voting  at  such  election  should  vote  for  the 
subscription,  the  board  of  county  commissioners  should  order  the  county 
clerk  to  make  it  in  the  name  of  the  township,  and  should  cause  such 
bonds  as  might  be  required  by  the  terms  of  the  vote  and  subscription  to 
be  issued  in  the  name  of  such  township,  to  be  signed  by  the  chairman  of 
the  board,  and  attested  by  the  clerk  under  the  seal  of  the  county. 

In  Marcy  v.  Township  of  Oswego,  supra,  bonds  to  which  the  coupons 
were  attached  contained  the  following  rt'6■/A^/.•  "  This  bond  is  executed 
and  issued  by  virtue  of,  and  in  accordance  with,  an  act  of  the  legislature 
of  the  said  state  of  Kansas,  entitled  '  An  act  to  enable  municipal  town- 
ships to  subscribe  for  stock  in  any  railroad,  and  to  provide  for  the  pay- 
ment of  the  same,  approved  February  25th,  1870,'  and  in  pursuance  of 
and  in  accordance  with  the  vote  of  three-fifths  of  the  legal  voters  of  said 
township  of  Oswego,  at  a  special  election  duly  held  on  the  17th  day  of 
May,  A.  U.  1870."  Each  bond  also  declared  that  the  board  of  county 
commissioners  of  the  county  of  Labette,  of  which  county  the  township 
of  Oswego  is  a  part,  had  caused  it  to  be  issued  in  the  name  and  in  behalf 
of  said  township,  and  to  be  signed  by  the  chairman  of  the  said  board  of 
county  commissioners  and  attested  by  the  county  clerk  of  the  said 
county,  under  its  seal.  Accordingly,  each  bond  was  thus  signed,  at- 
tested and  sealed.  The  bonds  were  registered  in  the  office  of  the  state 
auditor,  and  certified  by  him  in  accordance  with  the  provisions  of  an 
act  of  the  legislature.  His  certificate  on  the  back  of  each  bond  declared 
that  it  had  been  regularly  and  legally  issued;  that  the  signatures  thereto 
were  genuine,  and  that  it  had  been  duly  registered  in  accordance  with 
the  act  of  the  legislature. 

The  defence  to  the  bonds  was  that  there  had  been  an  over-issue,  con- 
trary to  the  statute.  The  bond,  it  will  be  observed,  contains  no  state- 
ment on  this  point,  but  it  was  held  by  the  Supreme  Court  that  the  recital 
in  the  bonds  estopped  the  township  from  making  this  defence  against  a 
bona  fide  holder. 

The  case  of  Marcy  v.  Township  of  Oswego  was  cited  and  approved  in 


32  THE  LAW  OF  MUNICIPAL  BONDS. 

invested  with  power  to  decide  whether  the  contingency  had 
happened,  or  whether  the  fact  existed  which  was  a  necessary 
condition  precedent  to  any  subscription  or  issue  of  the  bonds, 
their  decision  is  final  in  a  suit  by  the  bona  fide  holder  of  the 
bonds  against  the  municipality,  and  a  recital  in  the  bonds  that 
the  requirements  of  the  legislative  act  have  been  complied  with 
is  conclusive.  And  this  is  more  emphatically  true  when  the 
fact  is  one  peculiarly  within  the  knowledge  of  the  persons  to 
whom  the  power  to  issue  the  bonds  has  been  conditionally 
granted. "34 

Humboldt  Township  v.  Long,  decided  at  the  same  term,  the  court 
observing: 

"There  is  no  essential  difference  between  this  case  and  that:  The  as- 
sessment rolls  of  the  township  may  have  been  proper  evidence  for  the 
consideration  of  the  board  of  county  commissioners  when  they  were 
enquiring  what  the  value  of  the  taxable  property  of  the  township  was, 
but  the  bonds  are  not  invalid  in  the  hands  of  a  bona  fide  holder  by 
reason  of  their  having  been  voted  and  issued  in  excess  of  the  statutory 
limit,  as  shown  by  the  rolls.  Whatever  maybe  the  right  of  the  township, 
as  against  those  who  issued  the  bonds,  it  cannot  be  set  up  against  a  bona 
fide  holder  of  the  bonds  that  the  amount  issued  was  too  large,  in  the 
face  of  the  decision  of  the  board,  and  their  recital  that  the  bonds  were 
issued  pursuant  to  and  in  accordance  with  the  act  of  1870."  See  supra,. 
sec.  II  and  note. 

34  In  the  dissenting  opinion  of  Mr.  Justice  Miller,  (with  whom  concurred. 
Davis  and  Field,  JJ.,)  the  view  of  the  court  is  strongly  combatted.  A  few 
extracts  will  show  the  opinion  of  the  dissentients,  and  bring  into  clearer 
relief  the  views  of  the  court: 

"  In  the  cases  under  consideration,"  says  Miller,  J.,  "this  provision  of 
the  statute  was  wholly  disregarded.  I  am  not  sure  that  the  relative 
amount  of  the  bonds,  and  of  the  taxable  property  of  the  towns,  is  given 
in  these  cases  with  exactness,  but  I  do  know  that  in  some  of  the  cases 
tried  before  me  last  summer  in  Kansas,  it  was  shown  that  the  first  and' 
only  issue  of  such  bonds  exceeded  in  amount  the  entire  value  of  the  tax- 
able property  of  the  town,  as  shown  by  the  tax  list  of  the  year  preceding 
the  issue.  This  court  holds  that  such  a  showing  is  no  defence  to  the 
bonds,  notwithstanding  the  express  prohibition  of  the  legislature.  It  is 
therefore  clear  that  so  long  as  this  doctrine  is  upheld,  it  is  not  in  the 
power  of  the  legislature  to  authorize  these  corporations  to  issue  bonds 
under  any  special  circumstances,  or  with  any  limitation  in  the  use  of  the 
power,  which  may  not  be  disregarded  with  impunity.  It  may  be  the 
wisest  policy  to  prevent  the  issue  of  such  bonds  altogether.  But  it  is  not 
for  this  court  to  dictate  a  policy  for  the  states  on  that  subject.     The  result 


THE    LAW    OF    MUNICIPAL   BONDS,  33 

These  cases  afford,  perhaps,  a  more  striking  illustration 
than  any  previously  decided  by  that  court,  that  the  purchaser 
may  implicitly  rely  upon  the  recitals  in  the  bonds  made  by 
the  proper  officers,  that  the  authority  to  issue  them  has  arisen, 

of  the  decision  is  a  most  extraordinary  one.  It  stands  alone  in  the  con- 
struction of  powers  specifically  granted,  whether  the  source  of  the  power 
be  a  state  constitution,  an  act  of  the  legislature,  a  resolution  of  a  corpor- 
ate body,  or  a  written  authority  given  by  an  individual."  *  *  *  * 
"  No  such  principle  has  ever  been  applied  by  this  court,  or  by  any  other 
court,  to  a  state,  to  the  United  States,  to  private  corporations  or  to  indi- 
viduals. I  challenge  the  production  of  a  case  in  which  it  has  been  so 
applied.  In  the  Floyd  Acceptance  Cases,  7  Wall.  666,  in  which  the  sec- 
retary of  war  had  accepted  time  drafts  drawn  on  him  by  a  contractor, 
which,  being  negotiable,  came  into  the  hands  of  dojia  fide  purchasers 
before  due,  we  held  that  they  were  void  for  want  of  authority  to  accept 
them.  And  this  case  has  been  cited  by  this  court  more  than  once  with- 
out question.  No  one  would  think  for  a  moment  of  holding  that  a  power 
of  attorney  made  by  an  individual  cannot  be  so  limited  as  to  make  any- 
one dealing  with  the  agent  bound  by  the  limitation,  or  that  the  agent's 
construction  of  his  power  bound  the  principal.  Nor  has  it  ever  been  con- 
tended that  an  officer  of  a  private  corporation  can,  by  exceeding  his  au- 
thority, when  that  authority  is  express,  is  open  and  notorious,  bind  the 
corporation  which  he  professes  to  represent.  The  simplicity  of  the  de- 
vice by  which  this  doctrine  is  upheld  as  to  municipal  bonds  is  worthy 
the  admiration  of  all  who  wish  to  profit  by  the  frauds  of  municipal  oflfi- 
cers.  It  is,  that  whenever  a  condition  or  limitation  is  imposed  upon  the 
power  of  those  officers  in  issuing  bonds,  they  are  the  sole  and  final  judges 
of  the  extent  of  those  powers.  If  they  decide  to  issue  them,  the  law  pre- 
sumes that  the  conditions  on  which  their  powers  depended  existed,  or 
that  the  limitation  upon  the  exercise  of  the  power  has  been  complied  with  ; 
and  especially  and  particularly  if  they  make  til  false  recital  of  the  fact  on 
which  the  power  depends  in  the  paper  they  issue,  this  false  recital  has 
the  effect  of  creating  a  power  which  had  no  existence  without  it.  This 
remarkable  result  is  always  defended  on  the  ground  that  the  paper  is  ne- 
gotiable, and  the  purchaser  is  ignorant  of  the  falsehood.  But  in  the 
Floyd  Acceptance  Cases,  this  court  held,  and  it  was  necessary  to  hold  so 
there,  that  the  enquiry  into  the  authority  by  which  negotiable  paper  was 
issued  was  just  the  same  as  if  it  were  not  negotiable,  and  that  if  no  such 
authority  existed,  it  could  not  be  aided  by  giving  the  paper  that  form. 
In  county  bonds  it  seems  to  be  otherwise.  In  that  case  the  court  held 
that  the  party  taking  such  paper  was  bound  to  know  the  law  as  it  affected 
the  authority  of  the  officer  who  issued  it.  In  county  bond  cases,  while 
this  principle  of  law  is  not  expressly  contradicted,  it  is  held  that  the  paper, 
though  issued  without  authority  of  law,  and  in  opposition  to  its  express 


34  THE   LAW   OF   MUNICIPAL   BONDS. 

and  that  he  is  under  no  obligation  to  consult  the  records  of 
the  municipality,  and  is  not  charged  with  constructive  notice 
of  their  contents ;  and  this,  too,  it  will  be  observed,  where 
the  recital  in  the  bond  was  general,  and  not  specific  in  its 
nature,  and  where  the  facts  which  would  have  shown  the  issue 
of  the  bonds  to  have  been  illegal  were  matters  appearing 
upon  the  public  records  of  the  township. 

provisions,  is  still  valid.  There  is  no  reason  in  the  nature  of  the  condi- 
tion on  which  the  power  depends  in  these  cases  why  any  purchaser 
should  not  take  notice  of  its  existence  before  he  buys.  The  bonds  in 
this  case  were  issued  at  one  time,  as  one  act,  of  one  date  and  in  pay- 
ment of  one  subscription.  All  this  was  a  matter  of  record  in  the  town 
where  it  was  done. 

"  So,  also,  the  valuation  of  all  the  property  of  the  town  for  the  taxation 
of  the  year  before  the  bonds  were  issued  is  of  record  both  in  that  town 
and  in  the  office  of  the  clerk  of  the  county  in  which  the  town  is  located. 
A  purchaser  had  but  to  write  to  the  township  clerk  or  the  county  clerk, 
to  know  precisely  the  amount  of  the  issue  of  bonds  and  the  value  of  the 
taxable  property  within  the  township.  In  the  matter  of  a  power  depend- 
ing on  these  facts,  in  any  other  class  of  cases,  it  would  be  held  that 
before  buying  these  bonds,  the  purchaser  must  look  to  those  matters  on 
which  their  validity  depended.  They  are  all  public,  all  open,  all  acces- 
sible,— the  statute,  the  ordinance  for  their  issue,  the  latest  assessment 
roll.  But  in  favor  of  a  purchaser  of  municipal  bonds,  all  this  is  to  be  dis- 
regarded, and  a  debt  contracted  without  authority,  and  in  violation  of 
express  statute,  is  to  be  collected  out  of  the  property  of  the  helpless  man 
who  owns  any  in  that  district.  I  say  helpless  advisedly,  because  these 
are  not  his  agents.  They  are  the  officers  of  the  law ;  appointed  or 
elected  without  his  consent,  acting  contrary,  perhaps,  to  his  wishes. 
Surely  if  the  acts  of  any  class  of  officers  should  be  valid  only  when  done 
in  conformity  to  law,  it  is  those  who  manage  the  affairs  of  towns,  counties 
and  villages,  in  creating  debts  which  not  they,  but  the  property  owners, 
must  pay."  *  *  *  "  It  is  easy  to  say,  and  looks  plausible  when  said, 
that  if  municipal  corporations  put  bonds  on  the  market,  they  must  pay 
them  when  they  become  due.  But  it  is  another  thing  to  say,  that  when 
an  officer  created  by  the  law  exceeds  the  authority  which  that  law  con- 
fers upon  him,  and  in  open  violation  of  law  issues  these  bonds,  the 
owner  of  property  lying  within  the  corporation  must  pay  them,  though 
he  had  no  part  whatever  in  their  issue  and  no  power  to  prevent  it.  This 
latter  is  the  true  view  of  the  matter.  As  the  corporation  could  only  ex- 
ercise such  power  as  the  law  conferred,  the  issuing  of  the  bonds  was  not 
the  act  of  the  corporation.  It  is  a  false  assumption  to  say  that  the  cor- 
poration put  them  on  the  market.    If  one  of  two  innocent  persons  must 


THE   LAW   OF   MUNICIPAL   BONDS.  35 

Sec.  14.  Estoppel  by  recital  of  matter  of  fact,  e.  g.,  date  of 
subscription. — The  effect  of  recitals  in  the  bonds,  and  of  state- 
ments in  the  records  of  the  county  which  issued  the  bonds,  is 
considered  in  The  Town  of  Concord  v.  Portsmouth  Savings 
Bank. 35  A  controlHng  question  in  the  case  was  whether  the 
power  to  subscribe  for  stock  and  issue  bonds  therefor,  given 
by  the  act  March  26,  1869,  was  annulled  by  the  new  consti- 
tution of  the  state  (which  took  effect  July  2,  1870)  before  the 
subscription  was  made  or  a  valid  contract  to  subscribe  was 
completed.  The  court  held  that,  in  point  of  fact  a  legal  and 
binding  subscription  was  made,  or  agreed  to  be  made,  in  De- 
cember, 1869,  and  hence  the  defence  of  want  of  legal  power 
failed;  and  it  then  proceeded  to  view  the  case  as  affected  by 
estoppel,  the  plaintiff  being  a  bona  fide  holder  for  value  with- 
out notice  of  any  defence.  The  court  held  that  a  recital  in 
the  bonds  that  the  subscription  was  made  in  December,  1869, 
being  the  recital  of  a  matter  of  fact,  and  a  fact,  too,  pecu- 
liarly, if  not  exclusively,  within  the  knowledge  of  the  board 
of  supervisors,  estopped  the  county  to  set  up  that  the  sub- 
scription was  not  made  until  after  July  2,  1870,  when  their 
authority  to  subscribe  had  expired.^^ 

sufifer  for  the  unauthorized  act  of  the  township  or  county  officers,  it  is 
clear  that  he  who  could,  before  parting  with  his  money,  have  easily  as- 
certained that  they  were  unauthorized,  should  lose,  rather  than  the 
property-holder,  who  might  not  know  anything  of  the  matter,  or  if  he 
did,  had  no  power  to  prevent  the  wrong." 

35  Concord  v.  Portsmouth  Savings  Bank,  U.  S.  Sup,  Court,  Oct.  Term, 
1S75. 

3*  Town  of  Concord  v.  Portsmouth  Savings  Bank,  Sup.  Court  U.  S.  Oct. 
Term,  1875.  The  point  is  so  material  that  we  subjoin  the  opinion — de- 
livered by  Strong,  J., — on  this  point.  He  says:  "There  is,  however, 
another  consideration  that  is  worthy  of  notice.  The  findings  of  the  court 
are  that  the  plaintiff  below  is  a  purchaser  of  the  bonds  for  a  valuable 
consideration,  having  purchased  them  before  their  maturity  and  without 
notice  of  any  defence.  They  were  executed  by  the  president  of  the 
board  of  supervisors  and  the  county  clerk.  They  recite  that  they  are 
issued  by  the  county  of  Moultrie, '  in  pursuance  of  the  subscription  of  the 
sum  of  eighty  thousand  dollars  to  the  capital  stock  of  the  Decatur,  Sulli- 
van and  Mattoon  Railroad  Company,  made  by  the  board  of  supervisors 
of  said  county  of  Moultrie,  iyi  December,  A.  D.,  iS6g,  in  conforjtiity  to  the 
provisions  of  an  act  of  the  general  assembly  of  the  state  of  Illinois,  ap- 


$6  THE   LAW    OF   MUNICIPAL   BONDS. 

Sec.  1 5 .  What  constitutes  completed  sicbscription  or  contract 
to  subscribe. — Interesting  questions  have  arisen  as  to  what 
constitutes  a  subscription  on  the  part  of  a  municipahty  or 
other  pubhc  corporation,  or  a  vaHd  contract  to  subscribe,  to 
the  stock  of  a  railroad  company,  and  when  rights  are  vested 
thereunder  which  cannot  be  legislatively  impaired  without 
the  consent  of  the  parties  in  interest.  Where  a  precedent 
popular  vote  is  required,  and  upon  such  vote  authority  is 

proved  March  26,  A.  D.,  1869.'  Now,  if  it  be  supposed  that  the  pur- 
chaser of  bonds  with  such  recitals  was  bound  to  look  further  and  enquire 
what  was  the  authority  for  the  issue,  where  was  he  to  look  ?  Had  he 
looked  to  the  act  of  the  general  assembly  of  March  26,  1869,  he  would 
have  found  plenary  authority  for  a  stock  subscription  and  for  the  issue 
of  bonds  in  payment  thereof.  If  he  was  bound  to  know  that  the  consti- 
tutional provision  terminated  that  authority  after  July  2,  1870,  he  knew 
that  any  subscription  made  before  that  time  continued  binding  notwith- 
standing the  constitution,  and  that  bonds  issued  in  payment  of  it  were, 
therefore,  lawful.  If,  then,  he  had  enquired  whether  a  subscription  had 
been  made  before  July  2,  1870,  at  the  only  place  where  enquiry  should 
have  been  made,  namely,  at  the  records  of  the  board,  he  would  have 
found  an  order  to  subscribe,  equivalent  to  a  subscription  made,  in  De- 
cember, 1869,  corresponding  with  the  assertions  of  the  recitals,  and  de- 
clared by  them  to  have  been  a  subscription.  He  could  have  made 
enquiry  nowhere  else  with  any  prospect  of  learning  the  truth.  Every 
Step  he  could  have  taken  assured  him  that  the  recitals  were  true.  How, 
then,  can  the  county  be  permitted  to  set  up  against  a  bona  fide  holder  of 
the  bonds,  that  the  authority  to  make  a  subscription,  with  all  its  legiti- 
mate consequences,  had  expired  before  the  subscription  was  made,  in 
the  face  of  the  recitals  and  of  the  county  records  ?  Whether  it  had  ex- 
pired was  a  matter  of  fact,  not  of  law,  and  it  was  peculiarly,  if  not 
exclusively,  within  the  knowledge  of  the  board  of  supervisors.  After 
having  assured  a  purchaser  that  their  subscription  was  made  in  Decem- 
ber, 1869,  when  they  had  power  to  make  it,  it  would  be  tolerating  a  fraud 
to  permit  the  county  to  set  up,  when  called  upon  for  payment,  that  it  was 
not  made  until  after  July  2,  1870,  when  their  authority  expired." 

Purchaser  not  affected  by  statements  in  county  records  contrary  to  re- 
citals in  the  bonds  issued  by  the  county.  Nicolay  v.  St.  Clair  County, 
3  Dillon,  C.  C.  R.  163,  1874.  In  AUer  v.  Cameron,  lb.  198,  the  defend- 
ant town  was  held  estopped  to  set  up  against  a  holder  of  its  bonds  for 
value,  that  it  was  not  legally  incorporated. 

Effect  ofrecitalhy  authorized  officers.  See  also  Chambers  County  v.. 
Clews,  21  Wall.  317,  321;  Grand  Chute  v.  Winegar,  15  Wall.  355;. 
Lynde  v,  County  of  Winnebago,   16  Wall.  6 ;  Railroad  Co.  v.  Otoe 


■THE   LAW   OF   MUNICIPAL   BONDS.  ^ 

given  to  subscribe  for  the  stock,  the  vote  without  more  does 
not  constitute  a  contract  between  the  municipahty  thus 
authorized  to  subscribe  and  the  railroad  company.^? 

Sec.  1 6.  Stvnc — Poivct  may  be  anmdlcd  by  constitutional 
provision  or  legislative  action  before  lights  become  vested. — As 
illustrating  the  necessity  of  a  continued  existence  of  the 
poiver  to  issue  the  bonds,  and  as  showing  what  did  7iot 
amount  to  a  completed  contract  before  the  power  was  re- 
pealed by  a  constitutional  provision,  tlie  case  of  The  Town 
of  Concord  v.  Portsmouth  Savings  Bank  may  usefully  be 
referred  to.^^  Chronologically  stated,  the  facts  were  these: 
The  bonds  were  issued  under  the  act  of  March  7,  1867,  and 
so  recited.  The  act  enacted  that  certain  incorporated  towns 
and  cities,  and  towns  acting  under  the  township  organization 
law,  (among  which  it  was  conceded  the  town  of  Concord  was 
one,)  should  be  and  were  severally  authorized  to  appropnate 
such  sum  of  money  as  they  might  deem  proper  to  the  Chi- 
cago, Danville  and  Vincennes  Railroad  Company,  to  aid  in 
the  construction  of  the  road  of  said  company ;  to  be  paid  to 

County,  16  Wall.  667;  Mercer  County  v.  Hacket,  1  Wall.  83  ;  Woods  v. 
Lawrence  County,  i  Black,  386;  Gelpcke  v.  Dubuque,  i  Wall.  175; 
Meyer  v.  Muscatine,  lb.  384;  Kennicott  v.  Supervisors,  16  Wall.  464.-^ 

37Aspinwall  v.  County  of  Jo  Daviess,  22  How.  364.  Supra,  sec.  14; 
infra,  sees.  16,  17;  Town  of  Concord  v.  Portsmouth  Savings  Bank,  in- 
fra; Harshman  v.  Bates  County,  3  Dillon,  C.  C.  R.  150,  162,  note ;  S.  C. 
affirmed  in  Supreme  Court,  October  Term,  1875.  Dillon,  Munic.  Corp. 
(2d  Ed.)  sec.  42  and  cases  cited. 

The  rights  of  a  municipality  as  a  stockholder  in  a  railroad  company, 
and  whose  stock  has  been  paid  for  by  the  bonds  of  the  municipality,  are 
no  greater  than  the  rights  of  other  stockholders,  and  unless  specially 
authorized  by  the  legislature,  the  railroad  company  has  no  power,  when 
receiving  the  subscription  and  bonds,  to  agree  to  put  the  municipality  in 
a  better  position  than  other  stockholders,  as,  for  example,  by  agreeing  to 
pay  a  fixed  rate  of  interest  on  such  stock,  equivalent  in  amount  to  the 
interest  on  the  municipal  bonds  issued  in  payment  therefor.  Pittsburgh 
etc.  R.  R.  Co.  V.  Alleghany  County,  Sup.  Court  Pa.  Nov.  15,  1S74,  3 
Cent.  Law  Jour.  204.  Instance  in  which  there  was  legislative  authority 
for  such  a  contract,  see  case  of  the  Pittsburgh  and  Connelsville  R.  R. 
Co.,  13  P.  F.  Smith,  (Pa.),  126. 

3« Concord  v.  Portsmouth  Savings  Bank,  U.  S.  Sup.  Court,  Oct.  Term, 
S875  ;  see  infra  sec.  17. 


38  THE  LAW  OF  MUNICIPAL  BONDS. 

the  company  as  soon  as  the  track  of  said  road  should  have 
been  located  and  constructed  through  said  city,  town  or 
township  respectively.  To  this  was  attached  the  following 
proviso  :  "  Provided,  however,  that  the  proposition  to  appro- 
pyiate  moneys  to  said  company  shall  be  first  submitted  to  a 
vote  of  the  legal  voters  of  said  respective  townships,  towns 
or  cities,  at  a  regular  annual  or  special  meeting,  by  giving  at 
least  ten  days'  notice  thereof;  and  a  vote  shall  be  taken 
thereon  by  ballot  at  the  usual  place  of  election,  and  if  the 
majority  of  votes  cast  shall  be  in  favor  of  the  appropriation, 
then  the  same  shall  be  made ;  otherwise  not."  The  second 
section  empowered  and  required  the  authorities  of  said  mu- 
nicipalities to  levy  and  collect  a  tax,  and  make  such  provis- 
ions as  might  be  necessary  for  the  prompt  payment  of  the 
appropriation  under  the  provisions  of  the  law. 

The  town  voted  on  the  20th  day  of  November,  1869,  that 
it  would  make  a  donation,  provided  the  company  would  run 
its  railroad  through  the  town.  On  the  20th  of  June,  1870, 
the  company  gave  notice  of  its  acceptance  of  the  donation^ 

On  the  2d  day  of  July,  1870,  the  new  constitution  of  the 
state  went  into  operation,  by  which  it  was  ordained  that  "  no 
city,  town,  township  or  other  municipality  shall  ever  become 
subscribers  to  the  capital  stock  of  any  railroad  or  private  cor- 
poration, or  make  donation  to,  or  loan  its  credit  in  aid  of, 
such  corporation.  Provided,  however,  that  the  adoption  of 
this  article  shall  not  be  construed  as  affecting  the  right  of 
any  such  municipality  to  make  such  subscriptions ^  where  the 
same  have  been  authorized  under  existing  laws,  by  a  vote  of 
the  people  of  such  municipalities  prior  to  such  adoption." 

On  the  9th  day  of  October,  1871,  the  bonds  in  suit  were 
executed  and  delivered  as  a  donation  to  the  railroad  com- 
pany, and  the  question  was  whether  there  was  then  any  ex- 
isting authority  to  make  the  donation  and  issue  the  bonds. 
The  Supreme  Court,  after  pointing  out  that  the  authority 
given  to  the  town  of  Concord  by  the  act  of  March  7,  1867, 
{supra)  was,  not  to  subscribe  for  stock,  but  to  make  an  ap- 
propriation or  donation,  which  distinction  is  also  taken  in 
the  provision  of  the  constitution  above  quoted,  held  that  no. 


THE   LAW   OF   MUNICIPAL  BONDS.  39 

donation  could  be  made,  under  the  act  of  1867,  until  after 
the  completion  of  the  location  and  construction  of  the  road 
through  the  town:  that  the  vote  of  November  20,  1869,  in 
favor  of  an  appropriation  was  not  an  appropriation  or  dona- 
tion ;  that  the  power  to  make  such  donation  was  annulled  by 
the  constitution  on  July  2,  1870,  and  that  there  was  at  that 
date  no  contract  in  esse  between  the  town  and  the  railroad 
company  which  stood  in  the  way  of  the  operation  of  the  con- 
stitutional prohibition.  As  to  the  effect  of  the  vote  of  the 
town,  of  November  20,  1869,  and  the  acceptance  of  the  rail- 
road company,  of  June  20,  1870,  (both  of  which,  it  will  be 
observed,  were  before  the  constitution  went  into  operation,) 
the  court  observed :  "  But  the  town  was  not  empowered  to 
make  the  donation  until  the  road  was  located  and  constructed 
through  the  town.  It  had  no  authority  to  make  a  contract 
to  give.  And  the  acceptance  was  an  undertaking  to  do  noth- 
ing which  the  company  was  not  bound  to  do  before  the 
authority  of  the  town  to  make  a  donation,  or  to  engage  to 
make  a  donation,  came  into  existence.  What  is  called  the 
acceptance  of  the  railroad  company  cannot  be  construed  as 
an  engagement  to  locate  and  build  the  railroad  through  the 
town.  It  amounted  to  no  more  than  saying,  *  If  we  build 
our  road  through  your  town,  we  will  receive  your  gift/ 
There  was,  therefore,  no  consideration  for  the  town's  promise 
to  give,  even  if  the  popular  vote  can  be  considered  a  prom- 
ise. There  was  no  contract  to  be  impaired.  A  contract 
should  be  clearly  proved  before  it  invokes  the  protection  of 
the  federal  constitution.  We  conclude,  then,  that  at  the 
time  the  donation  was  made,  there  was  no  authority  in  the 
municipality  to  make  a  donation  to  the  railroad  company, 
and  consequently  no  authority  to  issue  the  bonds.  It  follows 
that  the  bonds  and  coupons  are  void," 

Sec,  17,  Same  —  Mode  of  subscription  —  ]Vhcn  subsciiption 
complftc. — Power  by  legislative  act  to  the  board  of  super- 
visors of  a  county  to  subscribe  an  amount  not  exceeding  a 
given  sum  to  the  stock  of  a  specified  railroad  company,  and 
to  issue  bonds  in  payment  therefor,  without  requiring  the 
sanction  of  a  popular  vote,  but  with  a  proviso  that  the  bonds 


40  THE  LAW  OF  MUNICIPAL  BONDS. 

shall  not  be  issued  until  the  road  is  open  for  traffic,  gives 
complete  authority  to  the  county  to  subscribe  for  the  stock, 
or  to  make  a  binding  agreement  to  subscribe  therefor  pre- 
paratory to  a  final  subscription.  The  proviso  that  the  pay- 
ment of  the  subscription  should  be  postponed  until  the  rail- 
road should  be  opened  does  not  limit  the  power  to  subscribe 
or  to  enter  into  an  agreement  to  make  the  subscription  be- 
fore the  road  is  completed. 

And  it  was  held  that  a  resolution  of  the  board  of  super- 
visors, made  when  the  power  to  subscribe  existed  or  had 
arisen,  that  the  county  subscribe  a  given  sum  to  aid  in  the 
construction  of  the  road  of  the  company,  without  any  sub- 
scription on  the  books  of  the  company,  amounted  to  a  sub- 
scription, or,  at  all  events,  to  a  legal  undertaking  to  subscribe, 
which,  when  assented  to  or  accepted  by  the  company,  be- 
.^  came  a  binding  contract,  which  the  county  could  not  revoke, 
and  which  could  not  be  impaired  by  any  subsequent  pro- 
hibition of  the  constitution  or  the  legislature,  without  the 
assent  of  the  railroad  company.^? 

But  before  any  subscription  is  made,  or  before  any  con- 
tract to  subscribe  is  completed,  the  authority  to  subscribe 
may  be  repealed  or  taken  away  by  legislative  or  constitu- 
tional provision.  And  if  the  authority  to  subscribe  depends 
upon  a  precedent  vote  of  the  people,  the  vote,  without  a  sub- 
scription or  an  agreement  to  subscribe,  does  not  create  a 
contract,  nor  preclude  the  repeal  of  the  authority  to  make 
the  subscription.'*^ 

39  Town  of  Concord  v.  Portsmouth  Savings  Bank,  U.  S.  Sup.  Court, 
Oct.  Term,  1875.     Compare  supra,  sec.  16, 

'♦^  Aspinwall  v.  County  of  Jo  Daviess,  22  How.  364,  1859;  U-  P.  R.  R. 
Co.  V.  Davis  Co.,  6  Kansas,  256,  1870;  Dillon  on  Munic.  Corp.  sees. 42, 
696.  note,  and  cases  there  cited ;  Harshman  v.  Bates  County,  3  Dillon, 
C.  C.  R.  162,  note.  The  law  on  this  subject  is  thus  stated  and  the  cases 
referred  to  and  distinguished,  by  Mr.  Justice  Strong,  in  The  Town  of 
Concord  v.  Portsmouth  Savings  Bank,  supra  : 

"  This  case  [although  between  the  same  parties]  differs  very  materially 
from  the  case  of  The  Town  of  Concord  v.  The  Portsmouth  Savings 
Bank,  No.  43,  of  this  term.  [Supra,  sec.  16.]  In  that,  we  held  that  the 
bonds  were  void  because  the  legislative  authority  to  issue  them  as  a  do- 


THE  LAW  OF  MUNICIPAL  BONDS.  4I 

Sec.  18.  Same — Completed  siibscription — Effect  of  consolida- 
tioJt  of  railivay  companies  on  validity  of  subscription. — The 
authority  to  make  a  subscription  and  to  issue  bonds  in  pay- 
ment therefor  may,  if  it  has  never  been  executed,  be  revoked 
by  any  event  which  has  the  legal  effect  to  extinguish  the 
power.  Thus  where  the  power  to  subscribe  depends  upon  a 
precedent  popular  vote,  and  the  vote  is  had  in  favor  of  Com- 
pany A,  which  under  a  general  law  of  the  state  consolidated 
with  ComjDany  B,  and  formed  thereby  a  new  company,  C, 
which  consolidation  was  effected  before  any  subscription  or 
contract  for  subscription  was  made,  and  the  only  subscription 

nation  to  the  railroad  company  had  been  annulled  by  the  constitution  of 
the  state  before  the  donation  was  made."  *  *  *  "  But  a  subscription 
on  the  books  of  the  company  was  unnecessary,  for  that  which  amounted 
to  a  subscription  had  been  made  in  December,  i86g.  The  authorized 
body  of  a  municipal  corporation  may  bind  it  by  an  ordinance,  which,  in 
favor  of  private  persons  interested  therein,  may,  if  so  intended,  operate 
as  a  contract,  or  they  may  bind  it  by  a  resolution,  or  by  vote  clothe  its 
officers  with  power  to  act  for  it.  The  former  was  the  clear  intention  in 
this  case.  The  board  clothed  no  officer  with  power  to  act  for  it. 
The  resolution  to  subscribe  was  its  own  act;  its  immediate  subscription. 
Western  Saving  Fund  Society  v.  The  City  of  Philadelphia,  31  Penn.  St. 
174;  Sacramento  v.  Kirk,  7  Cal.  419  ;  Logansport  v.  Blakemore,  17  Ind. 
318.  In  The  Justices  of  Clarke  County  Court  v.  The  Paris,  Winchester 
and  Kentucky  River  Turnpike  Co.,  11  Ben.  Monroe,  143,  it  was  ruled 
that  an  order  of  the  county  court,  by  which  it  was  said  the  court  sub- 
scribed, on  behalf  of  Clarke  county,  for  fifty  shares  of  stock  in  the  turn- 
pike company,  if  concurred  in  by  a  competent  majority  of  the  magis- 
trates, was  itself  a  subscription,  and  bound  the  county.  There  was  no 
subscription  on  the  books  of  the  company,  but  the  court  of  appeals  said, 
'  We  cannot,  therefore,  regard  this  order  as  a  mere  offer  or  pledge  to 
subscribe  the  fifty  shares  in  this  particular  road,  but  as  actually  taking, 
and  in  substance  and  legal  effect  subscribing  for  that  number  of  shares. 
So  in  Nugent  v.  The  Supervisors  of  Putnam  County,  19  Wall.  241,  it  was 
said  that  to  constitute  a  subscription  by  a  county  to  stock  in  a  railroad 
company,  it  is  not  necessary  that  there  be  an  act  of  manual  subscribing 
on  the  books  of  the  company.  These  cases  lead  directly  to  the  conclu- 
sion that  the  action  of  the  board  of  supervisors  in  December,  1S69,  was 
in  substance  and  in  legal  effect  a  subscription.  And  if  this  conclusion 
■could  not  be  reached,  it  would  make  but  little  difference  to  the  present 
case,  for  it  could  not  be  doubted  that  the  action  of  the  board  was  at  least 
Jin  undertaking  to  subscribe,  and  this  was  assented  to  or  accepted  by  the 


42  THE   LAW   OF    MUNICIPAL  BONDS. 

made  was  to  the  consolidated  company,  without  any  new 
election,  it  was  held  that  the  subscription  was  unauthorized^ 
and  that  the  bonds  which  recited  these  facts  were  void,  even 
in  the  hands  of  a  bo7ta  fide  holder  for  value.  The  ground  of 
the  decision  was  that  the  authority  to  make  the  subscription 
ceased  by  the  extinction  of  the  company  in  whose  favor  the 
vote  was  had,  such  extinction  being  the  legal  consequence  of 
the  consolidation.'*^     This  case  differs  from  Nugent  v.  The- 

railroad  company.  The  resolutions  were  entered  of  record  by  the  clerk; 
and  president  of  the  railroad  company,  and  the  company  made  an  ap- 
propriation of  the  bonds  to  be  received  in  payment  of  the  subscription^ 
by  a  contract  made  on  the  isth  of  April,  1870.  In  either  aspect  of  the 
case,  therefore,  there  was  an  authorized  contract  existing  between  the 
county  and  the  railroad  company  when  the  new  constitution  came  intO' 
operation.  No  matter  whether  the  contract  was  a  subscription  or  an. 
agreement  to  subscribe,  it  was  not  annulled  or  impaired  by  the  prohibi- 
tions of  the  constitution.  The  delivery  of  the  bonds  was  no  more  than 
performance  of  the  contract.  For  these  reasons,  it  is  in  vain  to  appeal 
to  the  decisions  made  in  Aspinwall  v.  The  County  of  Daviess,  22  How.. 
364,  and  The  Town  of  Concord  v.  The  Savings  Bank,  decided  this  term. 
In  neither  of  those  cases  was  there  any  contract  made  before  the  author- 
ity to  make  one  was  annulled.  We  do  not  assert  that  the  constitutional, 
provision  did  not  abrogate  the  authority  of  the  board  supervisors  to  make 
a  subscription  for  railroad  stock.  On  the  contrary,  we  think  it  did.  But: 
we  hold  that  contracts  made  under  the  power  while  it  was  in  existence 
were  valid  contracts,  and  that  the  obligations  assumed  by  them  con-^ 
tinued  after  the  power  to  enter  into  such  contracts  was  withdrawn.  The 
operation  of  the  constitution  was  only  prospective.  Indeed,  it  is  ex- 
pressly ordained  in  its  schedule  that  '  all  rights,  actions,  prosecutions^ 
claims  and  contracts  of  the  state,  individuals,  or  bodies  corporate,  shall 
continue  to  be  as  valid  as  if  this  constitution  had  not  been  adopted.*  It 
is  hardly  necessary  to  say  that,  under  the  act  of  the  general  assembly, 
the  authority  to  make  a  subscription  was  coupled  with  an  authority  and. 
a  duty  to  issue  county  bonds  for  the  sum  subscribed.  No  action  of  the 
board  was  needed  after  the  subscription  was  made." 

4'  Harshman  v.  Bates  County,  Sup.  Court  U.  S.  Oct.  Term,  1875,  3, 
Cent.  Law  Jour.  367.  The  grounds  of  the  judgment  of  the  court  on  this 
point  arc  thus  succinctly  stated  by  Bradley,  J.: 

"Another  objection  to  the  validity  of  the  subscription  for  which  the 
bonds  were  given  in  this  case  is,  that  the  township  voted  a  subscription 
to  one  company  and  the  county  court  subscribed  to  another.  This  is 
sought  to  be  justified  on  the  ground  that  the  former  company  became 
consolidated  with  another,  thereby  forming  a  third,  to  whose  stock  the 


THE   LAW  OF   MUNICIPAL   BONDS.  45 

Supervisors  of  Putnam  County/-  in  the  material  circumstance 
that  in  that  case  the  subscription  to  one  of  the  constituent 
companies  was  before  the  consoHdation,  while  in  this  one  it 
was  aftcnvards.  In  this  case  there  was  nothing  but  a  bare 
vote  before  the  consolidation,  which,  without  more,  creates 
no  contract  between  the  municipality  and  the  railroad  com- 
pany; while  in  the  Putnam  county  case  there  was  a  sub- 
scription in  addition  to  the  vote,  before  the  consolidation, 
and  the  right,  having  become  vested  in  the  railroad  company, 
may  be  transferred  to  another  on  an  authorized  consolidation 
being  effected.  And  where  the  consolidation  is  provided  for 
or  contemplated  by  the  legislation  of  the  state  in  force  when 
the  subscription  is  made,  a  subsequent  consolidation,  in  pur- 
suance of  the  enactment,  does  not  have  the  effect  to  invali- 
date the  subscription.     This  principle  was  distinctly  settled 

subscription  was  made.  This  consolidation  was  effected  under  a  law  of 
Missouri  authorizing  consolidations,  and  declaring  that  the  company 
formed  from  two  companies  should  be  entitled  to  all  the  powers,  rights, 
privileges  and  immunities  which  belong  to  either ;  and  it  is  contended 
that  this  provision  of  the  law  justified  the  county  court  in  making  the 
subscription  without  further  authority  from  the  people  of  the  township. 
But  did  not  the  authority  cease  by  the  extinction  of  the  company  voted 
for  ?  No  subscription  had  been  made.  No  vested  right  had  accrued  to 
the  company.  The  case  of  the  State  v.  Linn  County  Court,  44  Mo.  504, 
only  decides  that  if  the  county  court  refuses  to  issue  bonds  after  making 
a  subscription,  a  matidamus  will  lie  to  compel  it  to  issue  them.  There  the 
authority  had  been  executed  and  a  right  had  become  vested.  But  so 
long  as  it  remains  unexecuted,  the  occurrence  of  any  event  which  creates 
a  revocation  in  law  will  extinguish  the  power.  The  extinction  of  the 
company  in  whose  favor  the  subscription  was  authorized  worked  such  a 
revocation.  The  law  authorizing  the  consolidation  of  railroad  companies 
does  not  change  the  law  of  attorney  and  constituent.  It  may  transfer 
the  vested  rights  of  one  railroad  company  to  another,  upon  a  consolida- 
tion being  effected ;  but  it  does  not  continue  in  existence  powers  to  sub- 
scribe for  stock  given  by  one  person  to  another,  which,  by  the  general 
law,  are  extinguished  by  such  a  change.  It  does  not  profess  to  do  so, 
and  we  think  it  does  not  do  so  by  implication.  As  sufficient  notice  of 
these  objections  is  contained  in  the  recitals  of  the  bonds  themselves  to 
put  the  holder  on  enquiry,  we  think  that  there  was  no  error  in  the  judg- 
ment of  the  circuit  court;  and  it  is,  therefore,  affirmed." 

Same  case  in  circuit  court,  3  Dillon,  C.  C.  R.  150. 

♦'Nugent  V.  The  Supervisors  of  Putnam  County,  19  Wall.  241. 


44  THE  LAW  OF  MUNICIPAL  BONDS. 

in  the  Putnam  county  case  just  cited/3  and  such  existing  leg- 
islative authority  to  change  the  organization  controlled  the 
decision  and  constituted,  in  the  judgment  of  the  court,  the 
ground  of  distinction  between  that  case  and  the  oft-cited  case 
of  Marsh  v.  Fulton  County.'*'^ 

Sec.  19.  Must  be  a  valid  act  as  the  basis  of  the  power — Con- 
struction of  special poivers,  see  note. — A  purchaser  of  municipal 
bonds  is  bound,  as  has  already  been  incidentally  shown,  to 
take  notice  of  any  provisions  of  the  constitution  or  legislation 
of  the  state  relating  to  the /<?7wr  of  the  municipality  to  issue 
them,  and  if  the  act  conferring  the  power  is  in  conflict  with 
the  constitution,  the  bonds  are  void,  even  in  the  hands  of  a 
bona  fide  holder  for  value.'^s 

"3  19  Wall.  241.  The  principle  was  followed  and  applied  in  Thomas 
V.  Scotland  County,  3  Dillon,  C.  C.  R.  7,  and  in  Washburn  v.  Cass 
County,  3  Dillon,  C.  C,  R.  251,  and  the  bonds  held  valid  notwithstanding 
the  consolidation. 

**  Marsh  v.  Fulton  County,  10  Wall.  676. 

■♦5  Harshman  v.  Bates  County,  U.  S.  Sup.  Court,  Oct.  Term,  1875,  3 
Cent.  Law  Jour.  367.  As  the  decision  in  this  case  is  supposed  to  inval- 
idate all  the  bonds  issued  under  the  Township  Aid  Act  of  Missouri,  of 
March  23,  1868,  said  to  amount  to  nearly  ^3,000,000,  the  point  on  which 
the  act  was  decided  to  be  unconstitutional  will  be  stated.  The  constitu- 
tion of  1865  prohibited  such  subscriptions  "  unless  two- thirds  of  the  qual- 
ified voters  of  the"  municipality  issuing  the  bonds  "  shall  assent  thereto." 
Art.  II,  sec.  14.  The  Township  Aid  Act  authorized  the  issue  of  bonds 
*'  if  two-thirds  of  the  qualified  voters  of  the  township  voting  at  such  elec- 
tion are  in  favor  of  the  subscription."  The  Supreme  Court  hold  that 
there  is  a  broad  difference  between  the  constitution  and  the  act — the  for- 
mer requiring  the  assent  of  two-thirds  of  the  qualified  voters  of  the  mu- 
nicipality, while  the  latter  only  requires  the  assent  of  two-thirds  of  the 
qualified  voters  who  vote  at  the  election.  Same  case,  in  the  court  below, 
decided  on  another  ground,  the  constitutional  question,  being  made  for 
the  first  time  in  the  Supreme  Court,  is  reported  in  3  Dillon,  C.  C.  R.  150. 

Efiect  of  constitutiojial  provision  adopted  in  1870,  on  existing  powers 
to  aid  railways  in  Mississippi.  Woodward  v.  Calhoun  County,  (district 
court  of  U.  S.  for  Mississippi,  Hill,  J.,)  2  Cent.  Law.  Jour.  396.  In  Ohio, 
Cass  v.  Dillon,  2  Ohio  St.  607;  State  v.  Union  Township,  8  Ohio,  94.  In 
Missouri,  State  v.  Sullivan  County,  51  Mo.  531 ;  Kansas  City  etc.  R.  R. 
Co.  v.  Aldermen  etc.,  47  Mo.  349 ;  State  v.  County  Court  etc.,  48  Mo. 
339 ;  State  v.  Macon  County,  41  Mo.  453 ;  Smith  v.  Clark  County,  54 
Mo.  58  ;  State  v.  Green  County,  54  Mo.  540 ;  Thomas  v.  Scotland  County, 


THE    LAW    OF    MUNICIPAL    BONDS.  45 

And  the  purchaser  must  also  notice  the  provisions  and  ex- 
tent of  the  legislative  enactment  on  the  subject/^  Thus 
where  authority  was  given  to  certain  counties  lying  JiortJi  of 
the  Missouri  river,  a  subscription  made  and  bonds  issued 
under  such  authority  by  a  county  south  of  the  river  are  void 
in  the  hands  of  everybody."*? 

3  Dillon,  C.  C.  R.  7  ;  Nicolay  v.  St.  Clair  County,  lb.  163  ;  Hindekoper 
V.  Dallas  County,  lb,  171;  Jordan  v.  Cass  County,  lb.  185;  Foster  v. 
Callaway  County,  lb.  201. 

'-^  Infra,  sec.  20. 

«Sherrard  v.  Lafayette  County,  3  Dillon,  C.  C  R.  236,  1875;  S.  C  2 
Cent.  Law  Jour.  347.  The  case  was  briefly  this  :  By  an  act  of  the  legis- 
lature of  Missouri,  a  company  was  incorporated  with  power  to  construct 
a  railroad  from  the  town  of  Louisiana,  which  is  situated  on  the  Missis- 
sippi river,  7iorth  of  the  Missouri  river,  to  a  point  on  the  Missouri  river, 
and  the  county  court  of  any  county  in  which  any  part  of  the  route  of  said" 
road  should  lie  was  authorized  to  subscribe  stock  to  the  company,  with- 
out a  vote  of  the  people.  Afterwards  the  new  constitution  of  Missouri 
went  into  effect,  prohibiting  the  general  assembly  (i)  from  creating  cor- 
porations by  special  act,  except  for  municipal  purposes  ;  (2)  from  author- 
izing any  county,  etc.,  to  become  a  stock-holder  in,  or  loaning  its  credit 
to,  any  company,  association  or  corporation,  -unless  two-thirds  of  the 
qualified  voters  should  assent  thereto.  Subsequently  to  this,  the  legisla- 
ture passed  an  act  purporting  to  amend  the  charter  of  the  said  railroad 
company,  which  provided  that  the  county  court  of  any  county  in  which 
any  part  of  the  line  of  said  railroad  might  be  located  might  subscribe  to 
the  stock  of  said  company  and  issue  bonds,  etc.  Under  this  act,  the 
county  court  of  Lafayette  county,  a  county  lying  wholly  south  of  the  Mis- 
souri river,  issued,  toithout  a  vote  of  the  people,  the  bonds  from  which 
the  coupons  here  sued  on  were  detached,  and  several  installments  of  in- 
terest had  been  paid  on  them  :  Held,  i.  That  the  amendatory  act  from 
which  authority  to  issue  these  bonds  is  claimed  is  a  special  act,  in  effect 
creating  a  new  corporation,  and  is  hence  inhibited  by  the  state  constitu- 
tion. 2.  That  it  was  not  competent  for  the  legislature,  by  extending  the, 
route  of  the  proposed  road  beyond  the  point  designated  in  the  original 
charter,  to  authorize  a  county  south  of  the  Missouri  river  to  incur  indebt- 
edness in  aid  of  the  road,  without  a  two-thirds  vote  as  required  by  the 
constitution.  3,  That,  since  there  was  an  entire  want  of  power  to  issue 
the  bonds,  they  were  void  even  in  the  hands  of  innocent  purchasers.  4, 
That  the  fact  that  the  county  court  had  paid  interest  on  these  bonds  did 
not  estop  it  from  afterwards  setting  up  their  invalidity. 

Construction  of  special  power.  The  act  which  authorized  the  issuing 
of  the  bonds  to  pay  the  county  subscriptions  to  a  railway  company  di- 
rected that  the  bonds  so  issued  should  bo  made  payable  to  "  the  presi- 


4^  THE    LAW    OF    MUNICIPAL    BONDS 

Sec.  20.  Registration  of  bonds — Effect  of  fraudulejit  ante- 
dating.— The  history  of  the  issue  of  municipal  bonds  in  this 
-country  shows  that  conditions  imposed  by  law  requiring  a 
popular  vote,  or  conditions  in  the  propositions  submitted  to 
the  voters,  intended  to  prevent  fraud  and  to  secure  the  actual 
building  and  completion  of  the  roads,  have  been  often  evaded, 
and  the  bonds  issued  without  compliance  therewith.  Such 
bonds,  when  negotiated  for  value,  the  courts,  as  we  have 
seen,  have  held  to  be  binding.  To  prevent  such  improper  or 
improvident  issue  of  bonds  in  the  future,  the  legislatures  of 
some  of  the  states  have  passed  acts  requiring  all  bonds  to  be 
registered  with  some  of  the  executive  departments  of  the 
state  before  they  are  issued  or  negotiated.  Thus  in  1872'^^ 
the  legislature  of  Missouri,  a  state  in  which  many  fraudulent 

dent  and  directors  of  the  railroad  company,  and  their  successors  and 
assigns."  The  bonds  issued  were  made  payable  to  "the  railroad  com- 
pany or  bearer."  Held,  that  the  power  granted  was  sufficiently  pursued, 
and  that  the  bonds  so  issued  were  valid.  Woodward  v.  Calhoun  County, 
(U.  S.  Dist.  Court  for  Mississippi,  Hill,  J.,)  2  Cent.  Law  Jour.  396,  1874. 

Special  act  held  to  control  general  act.  R.  R.  Co.  v.  Otoe  County,  16 
Wall.  667,  1872. 

Power  to  donate  bonds  in  lieu  of  lands  and  right  of  way.  By  various 
provisions  of  a  city  charter,  the  mayor  and  city  council  were  authorized 
to  make  donations  of  land  for  the  right  of  way  and  other  privileges  to  a 
railroad  company,  and  to  expend  money  for  the  purpose  of  acquiring  land 
to  be  given,  and  were  authorized  to  borrow  money  to  an  unlimited  ex- 
tent, when  instructed  so  to  do  by  a  popular  vote,  and,  further,  to  issue 
bonds  to  fund  any  indebtedness  of  the  city,  existing  or  to  be  created. 
Under  this  authority,  a  railroad  company,  by  reason  of  complying  with 
certain  conditions,  became  entitled  to  demand  from  the  city  the  right  of 
way  and  depot  grounds.  The  company  agreed  with  the  city  to  accept 
the  bonds  voted  to  procure  the  right  of  way  and  grounds  in  lieu  of  the 
right  of  way  and  grounds,  and  it  was  held  that  the  city  had  the  power 
thus  to  agree,  and  that  the  bonds  were  valid.  Converse  v.  Fort  Scott, 
U.  S.  Sup.  Court,  Oct.  Term,  1875,  3  Cent.  Law  Jour.  449. 

A  J)roposiiion  once  voted  down  may  be  subsequently  re-submitted  and 
adopted,  unless  the  act  evinces  a  contrary  intention.  Society  etc.  v. 
New  London,  29  Conn.  174  ;  Smith  v.  Clark  County,  54  Mo.  58  ;  Wood- 
ward V.  Calhoun  County,  2  Cent.  Law  Jour.  396. 

Issue  of  bonds  before  law  authorizing  it  took  effect.  Phelps  v.  Bank, 
13  Wis.  432  ;  Berliner  v.  Waterloo,  14  Wis.  378. 

<^Act  of  March  30,  1872,  (Laws  of  Missouri,  1872,  p.  56). 


THE   LAW   OF   MUNICIPAL   BONDS.  47 

"bonds  had  been  issued,  passed  an  act  which  provided  that, 
■*'  before  any  bond,  hereafter  issued  by  any  county  *  *  * 
shall  obtain  validity  or  be  negotiated^'  it  must  be  first  regis- 
tered by  the  state  auditor,  who  shall  certify  thereon  that  all 
conditions  precedent  required  by  law,  and  by  the  contract 
under  which  the  bonds  were  ordered  to  be  issued,  have  been 
complied  with.     In  the  case  of  Anthony  v.  Jasper  County, ''^ 

*  Anthony  v.  Jasper  County,  U.  S.  Circuit  Court,  West.  Dist.  Mo 
April  Term,  1876,  3  Cent.  Law  Jour.  321.  In  delivering  its  judgment,  the 
•court  said  :  "  If  the  bonds  bore  date  after  the  act  of  March  30,  1872,  and 
had  not  been  registered,  it  is  plain,  we  think,  that  they  would  have  no 
'validity,'  and  hence  could  not  support  an  action  in  the  hands  of  any 
person.  But  they  are  antedated,  and  the  question  is,  whether  they  have 
validity  in  the  hands  of  the  innocent  purchaser.  Upon  the  best  consid- 
eration we  have  been  able  to  give,  our  conclusion  is  that  the  bonds  can 
not  be  enforced.  The  case  comes  within  the  doctrine,  which  is  well  set- 
tled, that  where  a  statute  declares  absolutely  and  without  exception  that 
a  contract  or  bond  or  note  is  void,  it  is  void  into  whosesoever  hands  it 
may  come.  This  statute  declares  that  no  unregistered  bond  shall  be 
-valid  or  be  negotiated.  Bonds  must  first  be  registered.  Without  regis- 
tration they  '  obtain  no  validity.''  Such  is  the  statute.  A  declaration  that 
"bonds  shall  have  no  validity  is  equivalent  to  declaring  them  to  be  void. 
Is  the  county  estopped  to  set  up  this  defence  ?  We  think  not.  The  case 
is  to  be  distinguished,  we  think,  from  those  decided  by  the  Supreme 
Court  of  the  United  States,  in  which  it  is  held  that  the  frauds  of  the  offi- 
cers cannot  be  visited  upon  the  innocent  bond-holder,  and  falls  within 
the  principle  of  Bayley  v.  Taber,  5  Mass.  286.  In  that  case  it  was  held, 
where  a  statute  enacted  that  promissory  notes  of  a  certain  description, 
'made  or  issued'  after  a  specified  day,  should  be  '  utterly  void,  and  no 
action  should  be  sustained  thereon,'  that  it  was  competent  to  the  makers 
of  such  notes,  when  sued  upon  notes  bearing  date  before  the  day  fixed  by 
the  statute,  to  prove  that  they  were,  in  fact,  made  and  issued  after  such 
day.  The  principle  of  that  case  is  the  same  as  in  the  case  at  the  bar,  and 
if  that  is  a  sound  principle  when  applied  to  the  individual  maker  of  pro- 
hibited paper,  it  should  apply  with  at  least  equal  force  in  favor  of  public 
bodies,  where  one  or  two  officers,  without  the  consent  of  the  others,  may, 
as  in  this  case,  combine  to  evade  the  law — the  other  officers  being  inno- 
cent of  wrongful  participation.  The  principle  involved  is  one  of  great 
consequence.  For  illustration :  Loose  and  general  powers  have  been 
heretofore  given  in  this  state  to  municipalities  and  counties  to  issue  such 
bonds.  This  power  has  been  taken  away  by  the  new  constitution.  Can 
the  protective  provisions  of  that  instrument  be  evaded  and  rendered 
useless  by  the  mere  fraudulent  act  of  the  officers  of  the  county  in  ante- 


48  THE   LAW    OF   MUNICIPAL   BONDS. 

it  appeared  that  bonds  were  signed,  sealed  and  issued  in  the 
manner  above  appearing,  after  this  statute  went  into  effect,, 
and  were  antedated  to  a  date  prior  to  the  passage  of  that 
enactment.  In  point  of  fact,  the  conditions  on  which  the 
bonds  had  been  voted  had  not  been  fully  complied  with;, 
and  hence  they  could  not  have  been,  and  were  not,  certified 
by  the  auditor  as  registered  bonds.  The  bonds  found  their 
way  into  the  hands  of  an  innocent  holder  for  value,  who 
did  not  know  that  the  bonds  bore  a  false  date.  The  circuit 
court  held  that  the  bonds  could  not  be  enforced,  and  that 
the  county  was  not  estopped  to  set  up  the  defence, — a  decis- 
ion which  necessarily  implied  a  distinction  between  such  a 
case  and  those  in  which  the  Supreme  Court  of  the  United 
States  had  held  that  the  county  or  municipality  could  not 
visit  the  frauds  of  their  officers  upcn  the  innocent  holders  of 
the  bonds.  The  case  has  gone  to  the  Supreme  Court  of  the- 
United  States,  and  it  remains  to  be  seen  whether  the  distinc- 
tion taken  below  will  be  adjudged  sound. 

Sec.  2 1 .  Retrospective  statutes  validating  iiregidar  subscrip- 
tions and  bonds. — In  the  absence  of  special  constitutional  re- 
strictions, the  competency  of  the  legislature  to  enact  retro- 
spective statutes  to  validate  an  irregular  or  defective  execution 
of  a  power  by  a  municipal  or  public  corporation  is  undoubted.^" 
And  the  power  to  cure  defective  subscriptions  to  the  stock 
of  railway  companies  and  validate  bonds  issued  therefor  has 
been  frequently  exercised  and  judicially  sustained.^* 

dating  the  bonds  ?  If  so,  the  power  to  defraud  is  endowed  with  a  fearful 
vitahty,  which  survives  the  prohibitions  of  the  constitution,  and  threatens 
to  become  immortal." 

Construction  of  Kansas  Bond  Registration  Act.  January  v.  Johnson 
County,  3  Dillon,  C.  C.  R.  392. 

S'Cooley  on  Const.  Lim.  371,  and  cases  there  cited;  Dillon  on  Munic. 
Corp.  sees.  46,  352,  424;  Ritchie  v.  Franklin  County,  22  Wall.  67,  1874; 
Cooley  on  Taxation,  223-232. 

.  s'  Dillon  on  Munic.  Corp.  (2d  Ed.)  sec.  424,  and  cases  there  cited.  In 
St.  Joseph  Township  v.  Rogers,  16  Wall.  666,  where  it  appeared  that  the 
election  at  which  the  subscription  was  approved  was  held  before  the  pas- 
sage of  the  law  authorizing  the  subscription,  the  court  said  :  "  Argument 
to  show  that  defective  subscriptions  of  the  kind  may,  in  all  cases,  be  rati- 
fied where  the  legislature  could  have  originally  conferred  the  power,  is 


THE    LAW    OF    MUNICIPAL    BONDS.  49 

Sec.  22.  General  sunwiary  of  doctrine  of  tJie  Supreme  Court 
as  to  estoppel  by  recitals. — In  passing  from  this  portion  of  our 
subject,  we  may  observe  that  if  we  have  not  mistaken  the 
meaning  and  effect  of  the  leading  judgments  of  the  Supreme 
Court  which  we  have  passed  in  review,  they  estabUsh  the  fol- 

certainly  unnecessary,  as  the  question  is  authoritatively  settled  by  the 
decisions  of  the  supreme  court  of  the  state  (Illinois),  and  of  this  court 
in  repeated  instances,"  And  again  :  "Mistakes  and  irregularities  are 
of  frequent  occurrence  in  municipal  elections,  and  the  state  legislatures 
have  often  had  occasion  to  pass  laws  to  obviate  such  difficulties.  Such 
laws,  when  they  do  not  impair  any  contract,  or  injuriously  affect  the 
rights  of  third  persons,  are  never  regarded  as  objectionable,  and  cer- 
tainly are  within  the  competency  of  legislative  authority." 

The  constitution  of  Illinois  of  1848,  Art.  ix,  sec.  5,  declared  "  that  the 
corporate  authorities  of  counties,  townships,  school  districts,  cities,  towns 
and  villages  may  be  vested  with  power  to  assess  and  collect  taxes  for 
corporate  purposes,  such  taxes  to  be  uniform  in  respect  to  persons  and 
property  within  the  jurisdiction  of  the  body  imposing  the  same."  The 
supreme  court  of  the  state  (Marshall  v.  Siliman,  61  111.  218  ;  Wiley  v. 
Siliman,  62  111.  170 — see  Dillon  on  Munic.  Corp.  sees.  46,  352,  424)  de- 
cided that,  this  section  having  been  intended  as  a  limitation  upon  the 
law-making  power,  the  legislature  could  not  grant  the  right  of  corporate 
taxation  to  any  but  the  corporate  authorities,  nor  coerce  a  municipal  cor- 
poration to  incur  a  debt  by  the  issue  of  its  bonds  for  corporate  purposes. 
And  the  court  held  that  an  act  validating  an  election,  irregularly  called 
and  notified,  to  vote  upon  the  question  of  township  subscription,  and 
declaring  the  same  legal  and  binding,  was  void.  In  the  opinion  of  the 
court,  the  act  was  an  effort  to  confer  the  power  of  municipal  taxation 
upon  persons  who  were  not,  by  themselves,  the  corporate  authorities  in 
the  sense  of  the  constitution,  and  to  compel  the  town  to  issue  its  bonds 
for  railroad  stock,  by  declaring  a  void  proceeding  to  be  a  valid  subscrip- 
tion. The  liability  of  the  township  on  the  same  bonds  afterwards  came 
before  the  Supreme  Court  of  the  United  States  in  The  Town  of  Elmwood 
V.  Marcy,  Oct.  Term,  1875,  and  a  majority  of  the  court  not  vindicating, 
nor,  it,  would  seem,  approving,  the  decision  of  the  supreme  court  of  Illi- 
nois, nevertheless,  as  there  had  been,  in  their  view,  no  conflicting  decis- 
ions of  that  tribunal  on  the  point,  and  as  it  involved  the  construction  of 
a  "  peculiar  provision  of  the  constitution  of  Illinois,"  they  felt  bound  to 
follow  it,  although  it  was  made  after  the  bonds  in  question  had  been 
issued.  Clitford,  Swayne  and  Strong,  JJ.,  dissented,  on  grounds  which 
would  seem  to  be  strongly  supported  in  the  previous  decisions  of  the 
court.  Supervisors  of  Marshall  County  v.  Schenck,  5  Wall.  772  ;  Town- 
ship of  Pine  Grove  v.  Talcott,  19  Wall.  666,  677  ;  Railroad  Co.  v.  County 
of  Otoe,  16  Wall,  667  ;  Olcott  v.  Supervisors,  lb.  678  ;  ijifra  sec.  22,  note. 


50  THE   LAW   OF    MUNICIPAL   BONDS. 

lowing  principles  :  —  The  purchaser  is  bound  to  see  that 
there  exists  legislative  authority  not  in  conflict  with  the  state 
constitution  for  the  issue  of  the  bonds  or  commercial  securi- 
ties of  the  municipal,  public  or  quasi  corporation,  and  is 
bound  to  notice  the  contents  and  recitals  contained  in  the 
instruments  ;  but  if  such  bonds  are  duly  executed  by  the 
proper  officers,  and  if  these  officers  are  invested,  by  the  true 
construction  of  the  legislative  enactment  in  that  regard,  with 
the  power  to  decide  whether  conditions  precedent  have  been 
performed,  and  the  bonds  contain  a  recital  that  such  condi- 
tions have  been  complied  with,  or  a  recital  which  implies 
such  compliance,  whether  the  preliminary  conditions  consist 
of  facts  hi  pais  or  facts  of  record — the  issue  of  the  bonds, 
under  such  circumstances,  with  such  a  recital,  is  conclusive 
against  the  municipality  as  to  the  fact  or  facts  recited  or  im- 
plied in  the  recital,  and  estops  it,  in  an  action  by  an  innocent 
holder  for  value,  before  due,  to  show  the  contrary.  This  is 
the  doctrine  of  the  Supreme  Court  of  the  United  States,  and 
the  point  in  which  it  differs  from  the  general  line  of  decisions 
in  the  State  courts  is  in  regard  to  the  evidence  of  compliance 
with  conditions  precedent.  In  all  the  cases  in  the  Supreme 
Court  of  the  United  States,  that  tribunal  has  held  that  the 
municipal  or  local  officers  were  constituted  the  judges  to  de- 
cide whether  antecedent  or  preliminary  steps  or  conditions 
had  been  complied  with,  and  that  their  decision  stated  or 
implied  in  the  recital  was  conclusive  against  the  corporate 
maker,  when  the  bonds  have  found  their  way  into  the  hands 
of  innocent  holders.  The  view  which  holds  the  local  officers 
a  tribunal  to  make  so  important  a  decision  rests  not  upon  any 
express  declaration  of  the  legislature  to  that  effect,  but  is 
"gathered,"  by  construction,  from  the  supposed  intent  and 
purpose  of  the  legislature.  Many  of  the  State  courts,  but  not 
all  of  them,  have  taken  a  somewhat  different  view.  They  agree 
that  mere  irregularities,  not  relating  to  the  essence  of  the 
power,  will  not  affect  a  bona  fide  holder ;  but  inasmuch  as 
there  exists  no  general  power  to  issue  such  securities,  and  as 
the  fact  of  compliance  or  non-compliance  with  condition  pre- 
cedent is  usually  a  matter  of  which  there  is  a  record,  the 


THE    LAW    OF    MUNICIPAL    BONDS.  $t 

purchaser  of  such  securities  is  bound  to  ascertain  whether 
the  power  to  issue  them  existed  or  had  arisen,  especially 
where  this  depends  upon  matters  of  which  a  record  is  re- 
quired to  be  made.  The  subject  is  one  full  of  difficulties. 
If  the  latter  view  is  sustained,  it  has  the  effect  to  impair  the 
ready  salability  and  market  value  of  the  securities.  If  the 
former,  it  has  the  effect  of  enabling  the  local  officers  in  power 
for  the  time  being  to  perpetrate,  without  any  effectual  pre- 
ventive in  many  cases,  the  most  outrageous  frauds.  On 
principle,  it  would  seem  that  the  legislative  intent  to  invest 
local  officers,  by  means  of  a  false  recital,  with  a  power  so 
tremendous  ought  not  to  be  held  to  exist,  unless  it  is  plainly 
declared  or  implied,  and  that  more  caution  in  the  purchase 
of  these  securities  than  is  required  by  the  doctrine  of  .the 
Supreme  Court  would  promote  the  interests  both  of  the 
maker  and  the  purchaser. 

And  in  this  class  of  cases  we  may  remark  that  the  Supreme 
Court  of  the  United  States  does  not  hold  itself  concluded  by 
decisions  of  the  State  courts  made  after  the  bonds  have  been 
negotiated,  unless,  possibly,  where  the  question  is  one  exclu- 
sively depending  upon  the  construction  of  local  and  peculiar 
provisions  of  the  state  constitution  or  enactments.^* 

5="  As  to  Iowa  municipal  bond  cases  and  the  conflict  of  opinion  between 
State  and  Federal  courts,  see  King  v.  Wilson,  i  Dillon,  C.  C.  R.  555; 
Gelpcke  v.  Dubuque,  i  Wall.  175,  and  cases  cited  in  Dillon  on  Munic. 
Corp.  (2d.  Ed.),  sec.  416,  d.  See  particularly  on  this  point,  Olcott  v. 
Supervisors,  16  Wall.  678;  Butz  v.  Muscatine,  8  Wall.  575,  explained; 
Supervisors  v.  United  States,  18  Wall.  71 ;  Chicago  v.  Sheldon,  9  Wall. 
50  ;  Pine  Grove  Township  v.  Talcott,  19  Wall.  666  ;  Town  of  Elmwood 
V.  Marcy,  U.  S.  Sup.  Court,  Oct.  Term,  1875  ;  supra,  sec.  21,  note,  as  to 
peculiar  local  legislative  or  constitutional  provisions. 

In  speaking  of  the /^rr^  of  the  State  court  decisions  in  the  Federal 
courts  in  this  class  of  cases,  Mr.  Justice  Strong,  in  Venice  v.  Murdock, 
•Oct.  Term,  1875,  holds  this  language  : 

"  It  is  argued,  however,  that  the  New  York  decisions  [Starin  v.  Genoa ; 
Gould  v.  Sterling,  23  N.  Y.  439,  456]  are  judicial  constructions  of  a  stat- 
ute of  that  state,  and,  therefore,  that  they  furnish  a  rule  by  which  we 
must  be  guided.  The  argument  would  have  force  if  the  decisions,  in 
fact,  presented  a  clear  case  of  statutory  construction.  But  they  do  not. 
They  are  not  attempts  at  interpretation.     They  would  apply  as  well  to 


52  THE    LAW    OF    MUNICIPAL    BONDS. 

Sec.  23.  Laches,  acquiescence,  paytneiit  of  interest  and  re- 
taining the  consideration  as  ground  of  estoppel. — The  cases  we 
have  heretofore  considered  were  those  in  which  the  munici- 
pahty  has  been  held  estopped  by  the  recitals  in  the  bonds  to 
show  that  conditions  precedent  had  not  been  complied  with. 
We  will  now  advert  to  otJier  grounds  of  estoppel  arising  from 
the  acquiescence  or  acts  of  the  municipal  authorities.  It  is 
undoubtedly  a  sound  proposition  that  a  municipal  corpora- 
tion, as  well  as  a  private  corporation,  may  confirm  acts,  not 
ultra  vires,  which  it  may  deem  beneficial  to  it. 

As  experience  shows  that  the  officers  of  public  and  munic- 
ipal corporations  do  not  guard  the  interest  confided  to  them 
with  the  same  vigilance  and  fidelity  that  characterize  the  offi- 
cers of  private  corporations,  the  principle  of  ratification  by 
laches  or  delay  should  be  more  cautiously  applied  to  the  for- 
mer than  to  the  latter.  But  the  principle  applies  to  both 
classes  of  corporations,  as  well  as  to  natural  persons.  The 
general  doctrine  is  undoubted  that  there  is  ordinarily  no  es- 
toppel in  respect  to  acts  which  are  in  violation  of  the  consti- 
tution, or  of  an  act  of  the  legislature,  or  which  are  obviously 
ultra  vires.   The  history  of  the  doctrine  of  ultra  vires  in  Great 

the  execution  of  powers  or  authorities  granted  by  private  persons  as  they 
do  to  the  issue  ofbonds  under  the  statute  of  April  16,1852,  They  assert  gen- 
eral principles,  to  wit,  that  persons  empowered  to  borrow  money  and  give 
bonds  therefor,  for  the  purpose  of  paying  it  to  an  improvement  company, 
are  not  authorized  to  deliver  the  bonds  directly  to  the  company,  a  doc- 
trine denied  in  this  court,  in  the  supreme  court  of  Pennsylvania,  and 
even  in  the  court  of  appeals  of  New  York.  People  v.  Mead,  24  N.  Y. 
124 ;  The  Town  of  Venice  v.  Breed,  —  N.  Y.  — .  They  assert,  also,  that 
where  an  authority  is  given  to  an  officer  to  execute  and  issue  bonds,  (on 
the  assent  of  two-thirds  of  the  voters  of  a  town,  the  assent  to  be  obtained 
by  the  officer  and  filed  in  a  public  office,  with  an  affidavit  verifying  the 
assent,)  the  verification  amounts  to  nothing,  subserves  no  purpose  and 
that  a  bona  fide  holder  of  the  bonds  is  bound  to  prove  that  the  requisite 
number  of  voters  did  actually  assent.  They  assert  this  as  a  general 
proposition.  They  do  not  assert  that  the  statute  so  declares,  or  that  such 
is  even  its  implied  requisition.  There  is,  therefore,  before  us  no  such 
case  of  the  construction  of  a  state  statute  by  State  courts  as  requires  us  to 
yield  our  own  convictions  of  the  right  and  blindly  follow  the  lead  of 
others,  eminent  as  we  freely  concede  they  are." 


THE    LAW    OF    MUNICIPAL    BONDS.  53 

Britain  and  in  this  country  makes  it  difficult  to  affirm  that 
the  rule  is  without  exceptions  ;  and  it  is  the  part  of  prudence 
and  wisdom  to  keep  close  to  the  adjudications  without  under- 
taking to  formulate,  in  advance,  rules  of  universal  applica- 
tion. As  to  inrgidaritics  in  the  exercise  of  an  express  power 
to  issue  bonds,  and  particularly  in  respect  to  steps  connected 
with  preliminary  conditions,  the  failure  of  the  municipality  or 
tax-payer  to  enjoin  the  issue,  followed  by  long  acquiescence, 
especially  when  this  is  accompanied  by  affirmative  acts  which 
recognize  the  validity  of  the  bonds,  such  as  receiving  and 
holding  the  stock  or  consideration  for  the  bonds,  or  paying 
interest  on  them  for  a  series  of  years,  has  been  held  to  estop 
the  municipality  from  defending,  on  the  ground  of  non-com- 
pliance with  conditions  precedent,  especially  when  the  bonds, 
as  is  usually  the  case,  have  been  negotiated  for  value.  But 
there  is  no  case  yet  decided  by  the  Supreme  Court  which 
liolds  the  corporation  estopped  from  setting  up  a  total  want 
of  power  to  issue  the  bonds.  The  leading  cases  on  this  sub- 
ject in  the  Supreme  Court  are  referred  to  in  the  note." 

53  As  to  the  effect  o^ failure  to  ejijoin  the  issue  of  the  bonds  and  of  ac- 
quiescence in  the  irregular  exercise  of  the  power,  see  Rogers  v.  Burling- 
ton, 3  Wall.  654,  667  ;  compare  dissent  on  this  point,  lb.  p.  672  ;  Bissell 
V.  Jeffersonville,  24  How.  300;  supra,  sec.  9;  Cooley  on  Taxation,  54S, 
549  ;  Butler  v.  Dunham,  27  111.  477  ;  Steincs  v.  Franklin  County,  48  Mo. 
176,  185  ;  State  v.  Van  Home,  7  Ohio  St.  331  ;  Barrett  v.  County  Court, 
44  Mo.  201  ;  Shoemaker  v.  Goshen  Township,  14  Ohio  St.  5S7. 

In  Supervisors  v.  Schenck,  5  Wall.  781, — from  Illinois — which  is  an 
important  case  on  this  subject,  it  appeared  that  in  Illinois,  counties  were 
authorized,  upon  a  popular  vote,  to  subscribe  for  stock  and  pay  therefor 
in  bonds  ;  an  election  was  ordered  by  the  county  court  in  a  certain  county, 
when  it  should  have  been  ordered  (by  reason  of  a  change  in  the  law)  by 
the  board  of  supcr^'isors  ;  it  was  duly  held;  the  proposition  was  carried; 
the  supcn'isors  made  the  subscription,  issued  the  bonds,  received  the 
stock  and  ordered  the  levy  of  taxes,  and  paid  the  coupons  for  nine  or  ten 
years ;  and  it  was  held  by  the  Supreme  Court  of  the  United  States,  in 
conformity  with  the  doctrine  of  the  State  supreme  court  as  first  announced 
but  subsequently  overruled,  that  the  acquiescence,  conduct  and  acts  of 
the  county  authorities  were  a  ratification  of  the  bonds,  at  least  when  in 
the  hands  of  an  innocent  holder,  and  estopped  the  county  to  make  the 
defence  that  the  election  had  been  ordered  by  the  county  court  instead 
of  the  board  of  supervisors.     In  view  of  the  facts  as  stated,  the  judgment 


54  THE   LAW   OF   MUNICIPAL   BONDS. 

PART  II.     OF  THE  MODE  OF  ENFORCING  PAYMENT  OF  MUNICIPAL 

SECURITIES, 

Sec.  24.  Mode  of  enforcijig  payment —  When  right  to  a  spe- 
cial  tax  exists,  it  cannot  be  impaired  by  subsequent  legislation. — 
The  general  principles  of  law  concerning  the  mode  of  enfor- 
cing the  claims  of  creditors,  including  bond  creditors,  of  mu- 
nicipal corporations  have  been  elsewhere  treated  of  by  the 

of  the  court  would  appear  to  be  sound  and  open  to  no  criticism,  as  the 
objection  to  the  bonds  was  an  irregular  exercise  of  an  admitted  power  in 
the  county,  and  not  a  want  of  power.  The  recital  in  the  bonds  is  not 
given,  but  it  would  appear  from  the  opinion  that  the  plaintiff's  case  also 
fell  within  the  doctrine  of  Knox  County  v.  Aspinwall. 

•  In  Pendleton  County  v.  Amy,  13  Wall.  297,  1871,  decided  on  demur- 
rer, it  did  not  appear  that  there  was  any  estoppel  by  reason  of  recitals  in 
the  bond,  nor  from  subsequent  payment  of  interest,  but  the  pleadings 
showed  that  the  county  had  received  in  exchange  for  the  bonds  a  certifi- 
cate of  the  stock  of  the  railroad  company,  which  it  had  held  for  seven- 
teen years  before  the  suit  was  brought,  and  still  held.  The  county  was 
authorized  to  purchase  the  stock,  but  only  on  condition  of  a  popular 
vote.  It  was  decided  by  the  Supreme  Court  that  purchasing  and  holding 
the  stock  under  these  circumstances  estopped  the  county  to  assert  against 
an  innocent  holder  of  the  bonds  that  they  were  issued  in  disregard  of 
the  condition  of  a  popular  election,  required  by  the  act  of  the  legislature 
conferring  the  power.  Three  of  the  judges  dissented,  probably  on  this 
point ;  and  certainly  the  case  seems  to  be  an  extreme  application  of  the 
doctrine  of  estoppel.  The  bonds  (so  far  as  appeared)  v;ere  without  re- 
citals ;  no  payment  of  interest  had  been  made  ;  a  popular  vote  was  made 
necessary,  and  the  plea  alleged  that  no  such  vote  had  ever  been  had, 
and  that  the  question  of  subscription  had  never  been  submitted  to  01 
voted  upon  by  the  people  ;  and  the  mere  receipt  and  holding  of  the 
stock  were  held  sufficient  to  estop  the  county  to  make  the  defence.  We 
have  not  been  able  to  reconcile  the  case,  on  this  point,  with  Marsh  v. 
Fulton  County,  referred  to  in  a  subsequent  portion  of  this  note. 

Payment  of  interest  on  bonds  issued  in  violation  of  the  constitutional 
rights  of  the  citizen  does  not  estop  the  municipality  from  defending 
against  them.     The  court  says  : 

"  We  do  not  attach  any  importance  to  the  fact  that  the  town  authori- 
ties paid  one  installment  of  interest  on  these  bonds.  Such  a  payment 
works  no  estoppel.  If  the  legislature  was  without  power  to  authorize  the 
issue  of  these  bonds,  and  its  statute  attempting  to  confer  such  authority 
is  void,  the  mere  payment  of  interest,  which  was  equally  unauthorized. 


THE    LAW    OF    MUNICIPAL    BONDS.  55 

present  writer,  and  it  is  not  designed  here  to  repeat  what 
may  there  be  found.54  We  confine  ourselves  here  to  the 
rights  and  remedies  of  bond  creditors.  In  ascertaining  these, 
special  reference  must  be  had  to  the  legislation  under  which 
the  bonds  were  issued.  If  the  legislature  authorizes  a  debt 
to  be  created,  and  provides  no  special  mode  for  its  payment, 
it  is  probably  a  sound  proposition  that  it  was  contemplated 
that  it  should  be  paid  in  the  usual  way  in  which  such  debts 
are  paid,  viz,  by  the  levy  and  collection  of  a  tax  for  that 
purpose. 

In  respect  of  railway  aid  bonds  of  municipal  and  public 
corporations,  the  settled  rule  of  law  is  that  the  power  to  issue 
them  must  be  expressly  conferred,  and  in  the  legislative  act 
conferring  it,  or  in  the  general  legislation  of  the  state  con- 
cerning the  subject,  express  provision  is  usually  made,  author- 
izing or  requiring  the  levy  and  collection  of  taxes,  or  of  a 
special  tax,  to  pay  the  debt  thus  created.  Such  provisions 
are  of  great  consequence,  and  have  often  proved  to  be  the 

cannot  create  of  itself  a  power  to  levy  taxes,  resting  on  no  other  founda- 
tion than  the  fact  that  they  have  once  been  illegally  levied  for  that  pur- 
pose."    Loan  Association  v.  Topeka,  20  Wall.  655,  667. 

The  case  of  Marsh  v.  Fulton  County,  10  Wall,  676,  1S70,  decides  this 
principle,  viz,  that  where,  under  the  legislation  of  the  state,  the  county 
authorities  had  no  power  to  subscribe  for  stock  and  issue  bonds  therefor, 
and  where  (as  held)  they  made  the  subscription  dnd  issued  the  bonds 
without  the  sanction  of  a  popular  vote,  the  bonds  co?itatning-  7to  recital^ 
such  bonds  are  void,  and  are  not  ratified  by  acts  of  the  county  authori- 
ties, such  as  appointing  agents  to  participate  in  the  corporate  meetings 
of  the  railway  company,  nor  by  the  payment  of  part  of  the  bonds  and 
the  interest  on  the  others  for  a  series  of  years,  and  the  reason  given  by 
the  court  was  that  no  ratification  could  be  made  unless  it  was  authorized 
by  the  people — the  defect  being  one  of  power.  Field,  J.,  observed: 
"  They  [the  supervisors]  could  not,  therefore,  ratify  a  subscription  with- 
out a  vote  of  the  county,  because  they  could  not  make  a  subscription  in 
the  first  instance  without  such  authorization."  Compare  Pendleton 
County  V.  Amy,  supra. 

5-»  Dillon  on  Munic.  Corp.  chap,  xx,  on  Mandamus,  sec.  685,  et  seq. 
Chap,  v  of  Mr.  High's  very  useful  work  on  Extraordinary  Legal  Reme- 
dies contains  a  collection  and  brief  statement  of  the  more  important  cases 
relating  to  the  writ  of  vunidamus  as  applicable  to  Municipal  Corpora- 
tions, to  which  we  take  pleasure  in  referring  the  reader. 


56  THE    LAW    OF    MUNICIPAL    BONDS. 

sole  ultimate  legal  reliance  of  the  creditor;  and  they  are  so 
far  connected  with  the  obligation  of  the  contract  as  to  come 
under  the  protection  of  the  Federal  constitution,  and  they 
cannot  be  repealed  or  impaired  by  subsequent  legislation. ss 

Where  the  statute  makes  express  provision  for  the  pay- 
ment of  bonds  by  the  levy  and  collection  of  taxes  for  that 
purpose,  the  bond-holder  has  a  right  to  stand  upon  this  pro- 
vision and  to  call  for  its  enforcement  in  his  favor;  and  in  such 
cases  it  is  no  answer  to  his  application  for  this  purpose  that 
an  execution  has  not  been  returned  milla  bona,  or  that  the 
debtor  corporation  may  have  property  subject  to  sale  on  ex- 
ecution.s^ 

Sec.  25.  Remedy  of  boid-liolder  is  by  mandamus,  andjtot  in 
equity. — The  proper  mode  of  enforcing  or  compelling  the 
performance  of  the  duty  of  levying  and  collecting  taxes,  in 
such  cases,  is  by  mandamus,  and  not  by  a  bill  in  equity. 
This  was  first  decided  by  the  Supreme  Court  in  Walkley  v. 
Muscatine,57  and  that  tribunal  subsequently,^^  under  circum- 
stances whice  made  a  strong  appeal  to  its  sense  of  justice,  has 
re-affirmed  the  principle  and  refused  to  exercise  cqu.ity  juris- 
diction over  a  repudiating  municipality  to  compel  it  to  pay  a 
judgment,  which  the  process  of  mandamus  had  proved,  (by 
reason  of  successive  resignations  of  the  municipal  officers, 
aided  by  the  character  of  the  legislation  of  the  state,)  for  a 
period  of  fourteen  years,  ineffectual  to  enforce.  The  court 
re-asserted  the  doctrine  that  the  regular  and  appropriate 
remedy  of  the  creditor  is  the  writ  of  mandamus  ;  and  declared 
that  in  legal  contemplation,  judged  by  its  nature  and  ordinary 
results,  and  not  by  its  failure  in  exceptional  cases,  it  was  an 
adequate  remedy,  and  that  the  difficulty  of  its  execution  in 

55  Van  Hoffman  v.  Quincy,  4  Wall.  535,  is  the  leading  case  on  this 
point,  but  there  are  numerous  others  in  which  the  principle  has  been 
applied,  which  are  cited  and  referred  to  in  Dillon  on  Munic.  Corp.  sees. 
41,42. 

5*  Knox  County  v.  Aspinwall,  24  How.  376,  1869;  Benbow  v.  Iowa 
City,  7  Wall.  313,  1868;  Dillon  on  Munic.  Corp.  sec.  686  and  notes. 

57  Walkley  v.  Muscatine,  6  Wall.  481,  1867. 

s^Rees  v.  Watertown,  19  Wall.  107,  1873  '.  followed  and  re-affirmed  in 
Heine  v.  The  Levee  Commissioners,  19  Wall.  655. 


THE   LAW   OF   MUNICIPAL   BONDS.  57 

a  particular  instance  afforded  no  sufficient  ground  for  equita- 
ble jurisdiction. 

Sec.  26.  Jurisdiction  and  course  of  procedure  in  the  federal 
cou7-ts — Execution — Demand — Refusal. — The  remedy  of  the 
municipal  or  county  bondholder  in  the  Federal  courts  is  to 
sue  at  law  and  obtain  a  judgment  to  establish  the  validity 
and  amount  of  his  debt.59  Thereupon  it  is  usual  to  issue 
execution  if  the  corporate  debtor  can  by  law  have  property 
subject  to  execution.  On  a  return  of  the  writ  milla  bona  or 
unsatisfied,  application  is  made  upon  an  information  or 
relation,  under  oath,  reciting  these  facts,  for  a  mandamus  to 
compel  the  levy  and  collection  of  a  tax  to  pay  the  judgment. 
But  if  the  bond-holder  is  by  the  statute  entitled  to  a  levy  of 
a  special  idi^  to  pay  his  judgment,  and  if  the  duty  of  levying 
it  has  been  neglected  or  refused,  it  is  not  necessary  that  an 
execution  should  in  such  case  be  returned  nulla  bona  in 
order  to  give  the  judgment-creditor  the  right  to  a  ina7idamus. 
As  the  course  of  procedure  in  the  Federal  courts  is  assimi- 
lated to  that  at  commo7i  law,  and  is  not  regulated  by  state 
statutes,  a  demand  of  the  respondent,  and  a  refusal  must 
ibe  shown,  or  circumstances  which  will  dispense  with  the 

S9 Heine  v.  The  Levee  Comm'rs,  19  Wall.  655,  657,  1S73;  Town  of 
■Queensbury  v.  Culver,  19  Wall.  83,  92.  In  such  cases  the  Federal  courts 
have  no  power  to  issue  a  writ  of  mandaimis  as  an  original  proceeding, 
and  hence  a  bondholder  cannot,  (as  it  is  held  in  some  of  the  State  courts 
he  may  do  under  certain  circumstances,)  before  putting  his  claim  into 
judgment,  apply  for  a  mandariuts.  In  the  Federal  court  he  fnust,  as 
stated  in  the  text,  first  obtain  his  judgment.  County  of  Bath  v.  Amy,  14 
Wall.  244,  1871,  Then,  upon  making  the  proper  relation,  he  becomes 
entitled,  under  what  was  sec.  14  of  the  Judiciary  act.  (now  Rev.  Stats. 
sec.  716,)  to  a  writ  of  viandamtis,  as  the  appropriate  remedy  to  enforce 
his  judgment.  It  is,  when  thus  issued,  \hQ  Jinal  process  \.o  enforce  the 
judgment,  and  performs,  in  substance,  against  municipal  corporate 
■debtors  the  office  of  a  writ  of  execution,  with  the  operation  of  which  the 
State  courts  can  no  more  interfere  than  they  can  with  the  other  process 
of  the  Federal  courts.  These  are  settled  principles  in  the  jurisprudence 
of  the  United  States.  The  leading  case  is  Riggs  v.  Johnson  County,  6 
"Wall.  166,  1867,  and  its  principles  have  been  frequently  re-asserted  and 
applied.  The  reader  will  find  the  decisions  cited.  Dillon  on  Munic.  Corp. 
•sec.  693,  note. 


58  THE  LAW  OF  MUNICIPAL  BONDS. 

demand.  When  a  demand  is  made,  it  should  be  upon  the- 
corporation  or  the  particular  officers  whose  duty  it  is,  and 
who  have  the  legal  power  to  comply  therewith,  and  the  de- 
mand should  be  for  the  performance  of  the  exact  duty  due 
to  the  creditor,  as  for  example,  to  levy  and  collect  the  neces- 
sary tax.  It  is  probable  that  an  execution  issued  and  a  de- 
mand of  the  proper  officers  thereunder  for  payment,  would, 
ordinarily,  be  treated  as  a  demand  to  levy  a  tax,  as  it  would 
then,  it  is  supposed,  become  the  duty  of  the  officers  to  levy 
the  proper  tax.  At  all  events,  such  an  effect  is  in  practice 
usually  ascribed  to  an  execution.  The  prudent  and  very 
cautious  practitioner  could  accompany  the  writ  of  execution 
with  a  specific  written  demand  to  levy  and  collect  the  tax, 
and  have  it  served  at  the  same  time  with  the  writ  of  manda^ 
mus,  and  the  service  should  be  upon  the  officers  upon  whom 
the  legal  duty  rests  to  do  the  act  demanded. 

Sec.  27.  Obstacles  in  way  of  collection — Resignation  of  offi- 
cers— Power  of  federal  court. — In  the  enforcement  of  judg- 
ments on  municipal  bonds,  the  creditors  have  encountered 
obstacles  arising  or  supposed  to  arise  from  two  decisions  o£ 
the  Supreme  Court. — The  United  States  v.  Boutwell,^  and' 
Rees  V.  City  of  Watertown.^'  The  case  against  Mr.  Bout- 
well  arose  when  he  was  Secretary  of  the  Treasury,  and  was 
an  application  in  the  inferior  court  for  a  mandamtis  to  com- 
pel him  to  pay  a  certain  order.  The  writ  was  refused,  and  a 
writ  of  error  taken  to  the  Supreme  Court,  after  which  Mr. 
Boutwell  resigned  and  his  successor  was  appointed.  The 
Supreme  Court  refused  the  application  to  substitute  the  suc- 
cessor, and  one  ground  of  the  refusal  was,  that  in  the  absence 
of  a  statute  altering  the  common  law  rule,  the  writ  of  man- 
damus abates  by  the  death,  resig7iation  or  removal  from 
office  of  the  officer  to  whom  it  is  directed.  In  the  view  of 
the  court,  the  office  of  a  writ  of  mandamus  is  to  compel  the 
performance  of  a  personal  duty  resting  on  the  respondent : 
"  If  he  be  an  officer,  and  the  duty  an  official  one,  still  the 
writ  is  aimed  exclusively  against  him  as  a  person,  and  he 

^United  States  v.  Boutwell,  17  Wall.  604,  1873. 
*'Rees  V.  Watertown,  19  Wall.  107,  1873. 


THE   LAW   OF   MUNICIPAL   BONDS.  5^ 

only  can  be  punished  for  disobedience ;  the  writ  does  not 
reach  the  office  and  cannot  be  directed  to  it ;  it  is  the  per- 
sonal default  of  the  defendant  that  warrants  the  impetration 
of  the  writ ;  it  necessarily  follows  from  this  that  on  the 
death  or  retirement  from  office  of  the  original  defendant, 
the  writ  must  abate  in  the  absence  of  any  statutory  provision 
to  the  contrary." 

The  Supreme  Court  in  the  other  case  referred  to^^  de- 
cided, in  effect,  these  propositions:  i.  That  in  the  enforce- 
ment of  his  judgment  against  the  municipality,  the  plaintiff 
was  confined  to  his  remedy  at  laiv  by  mandamus  or  other- 
wise, no  ground  of  equity  jurisdiction  being  made  out.  2^ 
That  the  neglect  and  refusal  of  the  municipal  officers  to  levy 
the  taxes,  their  disobedience  of  the  writs  of  mandamus  and 
their  resignations  to  evade  the  duty  of  levying  and  collect- 
ing the  taxes  did  not  authorize  the  court  to  appoint  officers 
of  its  own  to  levy  and  collect  them,  denying,  on  this  pointy 
Welch  V.  Ste.  Genevieve,  i  Dillon  C.  C.  R.  130,  and  dis- 
tinguishing Supervisors  v.  Rogers,  7  Wall.  175,  and  Lan- 
sing V.  County  Treasurer,  I  Dillon  C.  C.  R.  522.  3.  That 
it  was  not  competent  for  the  court,  in  virtue  of  its  general 
jurisdiction  as  a  court  of  equity,  (there  being  no  individual 
liability  on  the  part  of  the  tax-payers  or  inhabitants  of  the 
municipality  to  pay  the  debts  of  the  corporation,)  itself  to 
subject  individual  property  within  the  corporation  to  pay  the 
judgment — the  exclusive  remedy  being  by  mandamus  di- 
rected to  the  municipality  or  its  proper  officers,  commanding 
tlicni  to  levy  and  collect,  under  the  powers  vested  in  them  in 
that  behalf,  the  requisite  taxes.^^ 

**  Rees  V.  City  of  Watertown,  supra. 

*3  A  direct  effect  of  this  decision,  in  connection  with  the  protracted  and 
successful  evasion  of  the  City  of  Watertown,  was  to  encourage  munici- 
palities and  counties  elsewhere  to  adopt  the  same  mode  of  escaping  pay- 
ment, viz,  by  successive  and  repeated  resignations.  This  was  practised 
to  a  considerable  extent  in  the  state  of  Missouri  by  several  counties  that 
were  burdened  with  a  large  indebtedness,  but  it  was  measurably  checked 
by  the  action  of  the  executive  of  the  state,  Governor  Hardin,  in  refusing 
to  accept  the  resignation  of  the  county  court  judges  when  he  had  good 
reason  to  believe  that  the  resignation  was  tendered  for  this  purpose. 


•60  THE    LAW    OF    MUNICIPAL    BONDS. 

Sec.  28.  Distinction  betzvee^i  bo7ids  and  warrants  as  to  en- 
forcement.— What  we  have  heretofore  said  has  related  to  the 
enforcement  of  municipal  bonds  where  there  is  an  express 
authority  given  or  duty  enjoined  to  levy  a  tax  or  a  special 
tax  to  pay  them.  We  have  adverted  in  a  preceding  section^* 
to  the  distinction  between  negotiable  municipal  bonds  issued 
under  direct  authority  from  the  legislature,  and  ordinary  mu- 
nicipal or  county  orders  or  warrants.     The  distinction  be- 

The  case  of  the  Supervisors  v.  Rogers,  7  Wall.  175,  1868,  in  which  the 
United  States  Circuit  Court,  after  the  county  officers  had  evaded  the  law 
and  disobeyed  the  peremptory  writ,  directed  the  jnandatnus  to  the  tnar- 
shal  of  the  United  States  for  the  District  of  Iowa,  commanding  him  to 
levy  and  collect  the  taxes  named  in  the  writ,  and  which  was  sustained 
"by  the  Supreme  Court,  is  declared  in  the  Watertown  case  to  depend,  in 
this  respect,  wholly  upon  a  statute  of  the  state  of  Iowa  (Rev.  of  i860, 
sec.  3770).  That  statute  had  no  special  reference  to  this  class  of  cases, 
and  was  simply  to  the  effect  that  the  court,  in  cases  of  tnandamus,  "  be- 
sides or  instead  of  proceeding  against  the  defendant  by  attachment, 
may  direct  that  the  act  required  to  be  done  may  be  done  by  the 
flai7itiff  or  some  other  person  appointed  by  the  court."  The  practice  of 
the  Federal  court  in  maitdamus  cases  is  as  at  common  law,  and  this 
statute  had  never  been  adopted  by  rule  ;  but  it  was  held  "competent  to 
adopt  it  in  the  particular  case,"  and  that  it  authorized  the  court  to  ap- 
point a  third  person  or  officer  of  its  own  to  levy  and  collect  the  required 
taxes.  Looking  at  this  case  in  the  light  of  the  decision  and  reasoning  in 
the  Watertown  case  and  in  Heine  v.  The  Levee  Commissioners,  19  Wall. 
'655,  and  of  the  above  suggestions,  it  would  seem  to  rest  upon  a  very 
narrow  basis.  If  the  court  is  without  power  to  make  such  an  appoint- 
ment without  the  aid  of  the  statute,  it  was  certainly  a  very  broad  and 
liberal  view  of  the  language  of  that  statute  to  hold,  that  the  "act"  con- 
templated by  it  included  the  act  of  levying  and  collecting  taxes,  giving 
acquittances  therefor,  and  selling  property  to  enforce  the  payment 
thereof,  and  making  conveyances  to  complete  the  sales.  See  Heine  v. 
The  Levee  Commissioners,  19  Wall.  p.  661.  The  statement  in  the 
opinion  of  Nelson,  J.,  that  this  statute  "  is  but  a  modification  of  the  law 
•of  England  and  of  the  New  England  states,  which  provide  for  the 
execution  of  a  judgment  recovered  against  a  county,  city  or  town,  against 
the  private  property  of  any  individual  inhabitant,  giving  him  the  right 
to  claim  contribution  from  the  rest  of  the  people,"  can  hardly  be  main- 
tained in  view  of  the  decision  in  the  Watertown  case,  and  it  seems  ob- 
vious that  the  section  of  the  Iowa  statute  referred  to  was  intended  for  no 
such  purpose. 

^*  Supra,  sec.  5. 


THE    LAW    OF    MUNICIPAL   BONDS:  6l 

tween  the  two  classes  of  instruments  often  becomes  important 
when  it  is  sought  to  enforce  payment  by  means  of  manda- 
vius.  The  latter  class  of  instruments  not  being  commercial 
paper,  being  in  the  nature  of  vouchers  to  the  ordinary  cred- 
itor and  put  in  the  shape  of  warrants  or  orders  for  his  con- 
venience, are  to  be  paid  in  the  manner  provided  by  the  char- 
ter or  legislation  of  the  state.  The  provisions  are  variant  in 
different  charters  and  in  different  states.  In  some  of  the 
states  these  instruments  are  to  be  registered  and  paid  in  the 
order  of  their  registration,  and  there  is  no  provision  for  the 
levy  of  a  special  tax  to  pay  them  ;  and  it  is  contemplated 
that  as  they  are  issued  in  payment  of  the  ordinar}^  expenses 
of  the  city,  town  or  county,  that  they  are  to  be  paid  out  of 
the  ordinar^^  revenues  or  resources.  It  has  recently  become 
quite  common  for  the  non-resident  holders  of  such  instru- 
ments to  sue  thereon  in  the  Federal  courts,  hoping  to  obtain 
thereby  some  of  the  advantages  which  have  been  accorded 
by  those  courts  to  the  holders  of  negotiable  securities. 

Where  these  warrants  or  orders  have  been  issued  by  cor- 
porate or  quasi  corporate  organizations  capable  of  being  sued 
in  the  State  courts,  the  Federal  courts,  so  far  as  our  observa- 
tion has  gone,  have  held  that  the  non-resident  owner  thereof 
may  also  sue  thereon  in  the  Federal  court,  and  by  its  judg- 
ment establish  the  validity  and  amount  of  his  debt,  and  such 
judgment  may  become  the  basis  of  an  application  made  in 
due  form  for  a  writ  of  niandauius,  but  the  writ  when  so  issued 
will  only  command  the  proper  officers  to  discharge  the  legal 
duty  they  owe,  under  the  charter  or  statute,  to  the  warrant- 
holder.^5  The  Federal  courts  cannot  over-turn  or  interfere 
with  the  policy  of  the  state  in  respect  to  the  rights  or  remedies 
of  this  class  of  creditors.  The  leading  case  on  this  subject  is 
The  Supervisors  of  Carroll  County  v.  The  United  States.^^ 
Counties  in  Iowa  are  authorized  to  issue  for  ordinar>'  ex- 
penses orders  or  warrants  payable  to  bearer,  and  are  liable 
to  be  sued  upon  them.  The  statute  limited  the  power  of  the 
county  authorities  "  for  ordinary'  county  revenue  "  to  the  levy 

*5  Jordan  v.  Cass  County,  3  Dillon,  C.  C.  R.  185,  1874. 
**  Supervisors  etc.  v.  United  States,  18  Wall.  71. 


62  THE  LAW  OF  MUNICIPAL  BONDS. 

each  year  of  "  not  more  than  four  mills  on  the  dollar."  It 
made  no  provision  (as  the  statute  was  construed  by  the  su- 
preme court  of  the  state,  whose  construction  was  regarded 
by  the  Federal  courts  as  binding  on  them)  for  the  levy  of  a 
special  tax  to  pay  judgments  obtained  on  such  warrants.  The 
judgment-creditor  in  the  Federal  court  claimed  that  he  was 
entitled  to  the  levy  of  a  special  tax  to  pay  his  judgment.  But 
the  Supreme  Court  of  the  United  States  held  otherwise,  and 
decided  that  a  return  to  an  alternative  writ  of  mandamus  by 
the  county  authorities,  that  they  had  already  levied  a  four- 
mill  county  tax  for  the  current  year  (that  being  the  maximum, 
amount  allowed  by  statute)  was  a  sufficient  return.^7 

^7  Supervisors  etc.  v.  United  States,  i8  Wall.  71.  The  text  sufficiently 
states  the  principle  established  by  this  case.  -In  respect  of  the  local  stat- 
ute of  Iowa,  (sec.  —  of  the  Iowa  Revision,)  the  court  distinguished  and 
explained  the  case  of  Butz  v.  Muscatine,  8  Wall.  575, — perhaps  it  ought 
to  be  said  it  overruled  it  on  this  particular  point. 

The  circuit  court  of  the  United  States  for  the  Eastern  District  of  Ar- 
kansas, April  Term,  1876,  in  conformity  with  the  doctrines  of  the  text, 
upon  a  review  of  the  legislation  of  that  state  touching  the  indebtedness 
of  counties  on  warrants,  and  the  provisions  of  the  new  constitution  on 
the  subject  of  county  indebtedness,  declared  the  following  propositions  : 

1.  That  the  county  court,  in  case  the  county  is  indebted,  owes  a  legal 
duty  to  the  creditor  or  warrant-holder  to  exert  the  power  of  levying  taxes 
to  the  maximum  limit  allowed  by  law,  if  necessary  to  pay  the  outstanding 
indebtedness  of  the  county.  The  maxim7t?n  rate  can  in  no  event  be  ex- 
ceeded.    Dillon  on  Munic.  Corp.  sec.  689,  and  cases  there  cited. 

2.  That  a  creditor  who  has  obtained  a  judgment  in  this  court  against 
a  county  may,  after  proper  demand  on  the  county  court  to  discharge  its 
duty  in  this  regard,  and  a  neglect  or  refusal  on  the  part  of  the  court  to 
comply  with  such  demand,  have  a  mandainus  to  compel  the  performance 
of  such  duty.  There  must  be  such  a  demand  or  averment  of  facts  of 
such  a  nature  as  will  dispense  with  the  demand. 

3.  Under  the  new  constitution,  (Art.  xiv,  sec.  9,)  as  to  indebtedness 
then  existing,  there  is  a  duty,  which  creditors  may  enforce,  resting  on 
the  county  court  to  levy  a  tax  not  exceeding  one-half  of  one  per  cent. 
Such  tax  when  levied  and  collected  cannot  "  be  used  for  any  other  pur- 
pose" than  the  payment  of  such  indebtedness,  (Art.  xvi,  sec.  il,)  and 
must,  according  to  our  present  impression,  although  the  court  does  not 
hold  itself  concluded  on  the  point,  be  collected  in  money,  and  not  in 
other  warrants. 

A  judgment-creditor  of  a  county  in  Missouri  whose  judgment  is  based 


THE   LAW   OF   MUNICIPAL   BONDS.  63 

nipon  municipal  bonds  secured  by  the  right  to  a  special  tax,  who  has  re- 
ceived under  a  mandamus  a  county  warrant  therefor,  which  is  refused 
payment,  may  have  another  7na7idamus  to  enforce  the  judgment,  and  is 
not  bound  to  take  his  turn  among  ordinary  county  warrant-holders. 
This  ruling  coincides  with  the  distinction  pointed  out  in  the  text. 
United  States  v.  Vernon  County,  (Western  District  of  Missouri,)  2  Cent. 
Law  Jour.  771. 

John  F.  Dillon. 

Davenport,  Iowa,  September,  1876. 

Note.  The  Town  of  Concord  v,  Portsmouth  Savings  Bank,  No.  43, 
is  now  reported  in  3  Cent.  Law  Jour.  318. 

Town  of  Concord  v.  Portsmouth  etc.  is  now  reported  in  3  Cent.  Law 
Jour.  349. 


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